How Allianz invests in its digital future

German insurer Allianz is boosting its digital capabilities which should enable it to enter new markets at low cost and accelerate premium growth, according to Allianz’s first chief digital officer Solmaz Altin.

Allianz is working on simplifying products and processes and on developing technologies and platforms to fully digitise the business. Altin has headed the new ‘Digital Transformation’ unit since January 1 to foster the digitisation of the group.

Through a number of digital initiatives, the insurer hopes to reach a sustained increase in productivity of at least €1 billion ($1.1 billion) per year by 2018 while positioning itself as a ‘digital leader’, as revealed in the group’s three-year plan presented in November 2015.

The advantages offered by digitisation will be used to optimise Allianz’s risk-adequate pricing and to streamline and speed up claims processing. The company also seeks to increase growth and effectiveness in its business with medium-sized enterprises and commercial firms, according to its 2015 annual report.

The digitisation process will also facilitate market expansion as it significantly reduces required investment for such an endeavour, says Altin. “Nowadays, with cloud services one can acquire computing power and storage capacity as needed for comparatively low prices,” he explains.

“While this makes it easier for potential competitors to enter a market, this also applies to Allianz and will allow us to enter new markets,” he says. Such market expansion is an opportunity for launching greenfield projects and testing innovative solutions. “Allianz is currently developing its strategy to target new markets,” he says.

Allianz defines its core markets as being Germany, France, Italy and the US but it has operations all over the world. However, quite a few blank spots can be found particularly in Africa, the Middle East and Latin America.

FORGING PARTNERSHIPS

In November 2015, Allianz unveiled a joint venture with Chinese internet search provider Baidu and Asian equity investor Hillhouse. The aim is to establish a nationwide digital insurance company in China, create digital insurance solutions and distribute them online. The three partners will design innovative approaches in travel, e-commerce, internet finance, short-term health and lifestyle, and potentially also motor insurance in the future.

The initiative is supported by market research which expects that digital premiums in China are set to grow from €25 billion ($27.9 billion) in 2015 to €107 billion ($119 billion) in 2020.

The digital revamp is affecting all Allianz operations. The group is currently rolling out a programme named “single digital agenda” which is supposed to develop digitisation of products and processes in all its national units. Processes are being changed based on the needs and expectations of clients.

“In Germany, Italy and France, where we still have a strong insurance agent distribution network, clients are researching online prior to contacting an agent or a broker,” Altin says. “The fact that the clients move from one channel to another means that we need to adapt our processes to offer a seamless customer journey. We need to make sure that the insurance agent knows what the client was looking for online, which means that we have to reorganise our infrastructure and processes,” he explains.

Allianz is preparing its operations to cater for a new breed of clients. “We believe that client expectations will become globalised, as they are all being shaped in a similar way by Google, Facebook, Airbnb and Uber,” Altin says.

Altin, who was previously CEO of Allianz Turkey, does not believe that as a result of digitisation the insurer will be reducing staff numbers.

“Allianz is obviously interested in working at the lowest possible cost base, but employees who are currently involved in operations will be given a different task and the overall number of people who are participating in the process will not fall,” Altin says.

The digitisation process may actually end up increasing the number of employees involved as the company further focuses on clients, he suggests. Customers are becoming more demanding and expect quicker responses and action from their insurers for example in case of an accident, he explains. But Allianz is nevertheless set to benefit from the digitisation efforts as these are designed to result in higher customer satisfaction and retention and therefore higher premium volumes, he says.

Implementing the digitisation process is more complex in the wholesale market than in the retail space as solutions need to be tailored to individual clients, Altin notes. But in the wholesale market digitisation also offers opportunities to improve services and innovate, he says.

The insurer is exploring new business opportunities within as well as outside the insurance sector through its accelerator, Allianz X. The company helped, for example, to develop a drone marketplace which offers companies the opportunity to book drone flights. Allianz’s own units make use of the service and conduct damage or loss inspections which does not only help to reduce costs for such operations but also increases the speed of action, Altin notes.

Another project makes use of robots to take pictures of the interior of production sites which can be used as a basis for underwriting.

EMBRACING BLOCKCHAIN

Allianz is also exploring the opportunities that blockchain technology offers for streamlining business operations and the creation of new products. Bitcoin—the platform which became famous through electronic currency—is widely seen as a disruptive technology for the insurance industry.

The technology is described as a mutual distributed ledger because it is owned equally by all and dominated by no-one. Any user can keep his or her own copy, thus providing resilience and robustness, according to a PwC report. It has the ability to distribute data among multiple parties with each of them having their own copy, which can be updated without the need for a central party to manage, and creates a tamper-proof transaction history.

At its French incubator Allianz has supported the creation of Everledger, a startup which developed a blockchain solution that helps tackle fraud and theft in the diamond industry. It aggregates all existing information around diamonds such as shape, purity and trade history. The information available on its global ledger allows insurers to reduce the risk prior to entering a contract on a diamond as well as fraudulent claims. The service is likely to be expanded to other products such as art pieces and luxury goods.

More recently, Allianz has piloted the placement of a cat bond on the market in cooperation with Nephila Capital.

According to Allianz’s disruptive technologies division Allianz Risk Transfer (ART) the test run, which used blockchain smart contract technology for transacting a natural catastrophe swap, demonstrates that transactional processing and settlement between insurers and investors could be significantly accelerated and simplified by blockchain-based contracts.

It also points to other benefits such as increased tradability of cat bonds and wider opportunities to apply this technology in other insurance transactions.

Blockchain technology has the potential to facilitate and accelerate the contract management process of such cat swaps and bonds, the company claims.

“Blockchain could enable the creation of a decentralised contract administration at lower costs in the context of smart contract architecture,” Altin says.

“It needs to be tested thoroughly to make sure that it is user-friendly, and we are also mulling over ways to apply blockchain technology deeper down in our value-added chain,” he says.

“We need to build test pilots and the results of the tests need to be analysed before market introduction.

“Blockchain is a hugely interesting new technology which offers numerous opportunities, but these are far from mature in the insurance context,” he concludes.