THE DIGITAL-LED RECOVERY: HOW CRISIS BREEDS INNOVATION
As Winston Churchill once said: “Never let a good crisis go to waste”. While financial services have been heavily relying on technology to keep their business going over the last few weeks, Covid-19 serves as a catalyst for digital transformation across the industry.
We talked to key international players to learn more about the short and long-term implications of the pandemic on digital operations within the asset management and insurance sectors.
“Digital is not a “nice to have” anymore, but vital to survive and thrive in this current environment”, says Nasir Zubairi, CEO of the Luxembourg House of Financial Technology, LHoFT.
Like the rest of his peers from the financial sector, Zubairi has set up a home-office to navigate this new normal, increasingly relying on technology to keep business going.
Digital is not a “nice to have” anymore, but vital to survive and thrive in this current environment.
“All of us, even those few that shunned digital tools, have had to rely heavily on digital solutions to help us run our lives during confinement. As a consequence we are coming to terms with profound societal and behavioral changes that will impact our engagement with services in the longer term. Businesses will need to adapt, not just on the cost saving side but also in the way they engage with their customers.”
The impact on innovation within financial services as a consequence of the pandemic is expected to be two-fold. While in the short-term, innovation projects and collaborations with start-ups have come to a grinding halt as businesses focus their attention on managing their core operations, Covid-19 will to lead to a long-term acceleration of digital transformation across the industry.
“For some reason, financial services firms have not yet fully grasped that technology is core pillar of strategy, not just an enabler. The pandemic should finally be the catalyst for them to change and transform faster.”
No business continuity without technology
Financial services have now experienced how dependent and how critical digitisation is to their competitiveness and their sustainability as a business.
“Financial services have now experienced the dependency and criticality of digitalisation is to their competitiveness and their sustainability as a business. I hope that they will therefore now more aggressively pursue digital transformation going forward to be more resilient against risks of this nature and take full advantage of all the added-value technology can deliver,” adds Zubairi.
While the general timeframe for the implementation of new digital tools in financial services was still taking between 2 to 3 years, Covid-19 has pushed companies to accelerate their innovations in a matter of weeks.
“It’s been eye-opening how fast financial institutions have been able to adapt and transform their operating models to deal with the confinement. The ability for them to keep their business going fully relied on technology, whether it is video conferencing tools, data management or document management.”
Operating faster in a complex world
“There are a lot of lessons learned. The pandemic will accelerate all our undergoing initiatives around digital transformation or the adoption of new solutions allowing us to operate in a faster way, whether that be in terms of communication or different types of automated systems,” explains Eduardo Gramuglia, Country Head of State Street Luxembourg.
As the largest fund administrator, custodian and transfer agent in Luxembourg, State Street has relied on its global footprint to prepare large-scale remote working for all of its employees, relying entirely on technology to ensure stability of service to asset owners and managers.
Technology is what made it possible in such a short period of time and allowed us to maintain client deliverables, all while keeping everything secure from a cyber perspective.
“We started implementing command centers out of the U.S. and global planning as we saw the pandemic travel West. When we had to jump to action, we had already run tests and made sure that everyone could fully operate from home with the necessary access they needed. Technology is what made it possible in such a short period of time and allowed us to maintain client deliverables’, all while keeping everything secure from a cyber perspective, the way clients would have expected us to do if Covid-19 would not have been there.”
As a LHoFT member, State Street is not new to innovation and has been looking at digital transformation to propel itself into the future. The digitization of its processes, in particular with regards to its fund accounting system with processes moving to hand written ledgers to real time activities and data, has proved a key element in the company’s resilience during the crisis, allowing for faster real-time processes.
It proved very handy once market volatility started to hit and allowed the processes to flow much faster and not repeat themselves too many times. The checks that we did manually are no longer needed electronically, which reduces the cycle that needs to be run. As a result, our remitting is getting out a whole half hour earlier, which in some cases is a lot of time,” adds Gramuglia.
In an increasingly competitive environment, the service providers that adopt an open architecture mindset, providing solutions that aggregate data and give a holistic view to their clients, have a bright future. This trend is expected to accelerate in a post Covid-19 environment.
It proved very handy once market volatility started to hit and allowed the processes to flow much faster and not repeat themselves too many times.
“For the asset servicing business, the type of products that we need to support our clients with have evolved, as their requirements have become more stringent. Due to the evolving complexity of their products, technology is paramount for asset managers to achieve alpha for their investors, as it needs to cater not just for today’s need, but also for the future.”
Agile is the new normal
The insurance group Foyer has managed to navigate smoothly the transition to remote working for its 800 employees and 600 agents within 2 weeks and maintained business continuity relying on its paperless policy.
“Digitalisation will keep us in business in a world of social distancing. If all your operational processes were already paperless, the passage from on-site operations to teleworking was much easier. The fact that data processing is highly digitalised within the insurance industry was another element that allowed for a smooth transfer to large-scale teleworking,” highlights Marc Lauer, CEO of Foyer.
For Lauer, such agility is a good omen for the future of innovation within the industry. “That shows that in difficult times, things can happen which will never have happened otherwise. Generally speaking, that’s good news for all innovators.”
Leader of the local life and non-life insurance market, Foyer has stepped up its digital game over the years in a bid to reinvent the relationship with its customers.
“Innovation means making a daily effort to change habits and look to the future. The fact that our customers can send their health reimbursement requests via mobile phone, or that we can film a claim via video conference with the loss assessor creates a high added-value.”
As of today, thanks to artificial intelligence, more than 90% of the documents sent to Foyer are recognized automatically and 20% of the claims are already fully automated.
Aware of the deep behavioral changes arising from the crisis, the insurance group is accelerating his digital agenda and has started to reflect on how to adapt in the months and years to come as a result of this experience. For Lauer, the challenge will be to find processes where digitalization creates value for both the client and the insurer.
“As customers may continue to apply social distancing rules, all clients facing processes will undergo, if not yet already the case, an accelerated digitalization. However, it will not be the only item for business opportunities. Will digitization be the answer to everything? I don’t think so,” adds Lauer.
Will digitisation be the answer to everything? I don’t think so.
Insurers will need to find the right balance between the value proposition of personal, agent-delivered services and that of the imperative to digitise and automate.
“Automation and self-servicing should definitely be pushed for specific types of claims while actions involving emotion will still require personal contacts. More automation will also be key in optimising our processes, speed up claims processing and remove significant cost across the value chain,” underlines Lauer.
While new needs will emerge, new risks will come into play.
“During the two months of lockdown, people’s major concern wasn’t insurance. However, they were still facing different risks. The acceleration of remote working will obviously generate new insurance needs like for example in cyber security.”
Recasting the role of agents
While measures to contain the spread of the virus have grounded the insurance industry’s face-to-face sales consultants, the rise of video conferencing tools during the pandemic is expected to accelerate the digitization of sales channels and serve as a catalyst for agents to do more business digitally.
For Lauer, insurance agents will continue to have a valuable role in the post Covid-19 digital area.
Clients want great digital experiences as much as they want great human experiences.
“It will change our process of selling, change our process of advising but personal contact will still play a key role in our industry, even though it may be over Webex or Skype. Clients want great digital experiences as much as they want great human experiences. It is especially true as we are often dealing with complicated products. If you want to write a pension insurance or health insurance, you don’t want to do that over three clicks.”
Data: a major game-changer in the making
Never before has the need for accurate and timely data been greater. The data generated and collected by end-users is expected to lead to potential new business-models post Covid-19 for insurance incumbents.
“Insurers will have to reassess their product offerings, looking to provide more agile and customized services given the new habits coming out of the crisis, whether it is car insurance or home insurance. It means looking at how to manage risks better through data collection and data analysis. This can be achieved with technology, particularly artificial intelligence,” underlines Zubairi.
“Insurers will have to reassess completely they product offerings by providing more agile and customised services given the new habits coming out of the crisis.
At Foyer, tapping new data sources is achieved with Data Studio, a dedicated service created more than 2 years ago.
“Data has been extremely important for us and will be even more important in a post Covid-19 world. The service counts a dozen of employees just working on our data and integrating data from open sources into our systems. That service has to be valuable, especially for the younger generation aware of the fact that data is value and if you pay, you have to get something valuable in exchange,” says Lauer.
RegTech: cutting red tape
“The pandemic has shown that we can cut through a lot of our own red tape. That’s an opportunity for us, but also for all the FinTech ecosystem around us that have the innovation and solutions to operate faster. The LHoFT, as a public-private organisation, has been a key piece in that puzzle so far and will be even more important in the future to bring start-ups and companies together,” explains Gramuglia.
Covid-19 has broadened the mindsets in what is considered as equally safe in the technological solutions used by financial services and will impact future contingency planning accordingly.
The pandemic has shown that we can cut through a lot of our own red tape. That's an opportunity for us, but also for all the FinTech ecosystem around us that have the innovation and solutions to operate faster.
“Anything from digital signatures to allowing for board meetings to happen remotely and securely, we couldn’t have imagined it without Covid-19. To me, the pandemic has eradicated faxes, as people at home obviously did not have access to it anymore so it pushed us in getting more comfortable in putting instructions in e-mails. It has become a normality in what used to be considered as a contingency situation,” adds Gramuglia.
Now is not the time to put compliance on the back burner. New technologies brought to the fore by the pandemic have highlighted the growing need for RegTech, a segment expected to continue to thrive in a post Covid-19 environment.
“Once financial institutions have stabilized their operations, they must turn again to developing strategy; business growth and cost cutting. It will be difficult for them to on-board any new customers because of social distancing measures and their antiquated methodologies of needing signatures from customers, use of faxes, the necessity for notarization, etc. Technologies around digital signatures, video onboarding tools and customer engagement that can allow for the regulatory requirements and KYC process to be effectively done remotely will be front and centre in institutional minds,” highlights Zubairi.
Technologies around digital signatures, video on-boarding tools and customer interaction that can allow for the regulatory requirements and KYC process to be effectively done remotely will be front and centre in institutional minds.
RegTech is not the only sector expected to flourish coming out of Covid-19. In a changing world, we too, as individuals, must reinvent ourselves to ensure our relevance. With all the uncertainty presented as a result of the pandemic and the likely transformation of financial services, Zubairi expects EdTech, education technology designed for financial services to also come to the fore.
“Financial services practitioners should look to focus on re-skilling their teams and, as individuals, improving their capabilities to be prepared for the changes to come.”
While the last few weeks have witnessed a level of adaptation never experienced before, a lot of questions remain open. For Gramuglia, collaboration with financial sector authorities in order to accelerate cloud development will be key.
“How can we get working with the regulator collaboratively, find a solution to be able to make it more widespread and continue to have the same level of protection for our clients, for ourselves and for the industry at large in terms of adoption of that type of technology?”
Now is the time for bold learning at scale.
“The long-term memory of the financial industry is about 12 to 18 months. It will be important to keep reminding ourselves of what we just went through and how vital technology has been in our resiliency,” concludes Gramuglia.