MAKING THE ELEPHANT DANCE

A Bellwether’s Growth
Conundrum

CASE STUDY
 Tatsuki Shiwo, the COO of Moritz Fire & Marine Insurance (MFMI), has had a lot of
sleepless nights. MFMI is the largest non-life insurance company in Japan, but that
The Case Challenge
doesn’t mean they’re not too big to fail. The Japanese insurance industry has been Mr. Shiwo, Ms. Yeona, and Mr.
facing issues on multiple fronts—population changes, lower interest rates, new Mingyu have asked for your
accounting systems, reorganization of the selling commission system, reduction help. As a consulting partner to
of tax privileges, changes in insurance policies, and deregulation. Growth and MFMI, you will assess their claims
profitability are trending downward for MFMI. Mr. Shiwo assembles a committee of management process, along
cross-functional teams to evaluate the issues and devise a strategy in the current with their data governance and
market. He understands that he needs a dual approach: They must evaluate their management practices. You will
business processes to optimize operations. At the same time, they need to increase prepare a recommendations
their investments in digital transformation to build better data and analytics report on these topics for MFMI.
capabilities for driving decisions. The function heads submit a report after a Furthermore, they have asked
preliminary assessment listing the key areas where reengineering or optimization you for an implementation plan
will be required to meet the desired objectives. Nozomi Yeona, VP, Operations, for the whole program. This plan
suggests that to manage profitability, claims management should be evaluated. should incorporate the objectives,
Kim Mingyu, VP, IT, wants to focus on data ingestion, storage, management, and key activities, deliverables,
consumption. Mr. Shiwo concurs with both Ms. Yeona and Mr. Mingyu—their assumptions, stakeholders
operations will be more robust by improving their claims management processes involved, and so on, to assist MFMI
and their data and analytics model for data-driven decision making. on their transformational journey.

BACKGROUND industry. The FSC is responsible for

The market bellwether
Moritz Fire & Marine Insurance (MFMI)
offers fire, marine, damage, liability,
and long-term non-life insurance, as
well as private pension funds. With
annual revenues of approximately
$20B USD and 24% of market share,
MFMI is the largest non-life insurance
company in Japan.
MFMI was incorporated on January
26, 1952, under the name “Japan Fire
Marine Reinsurance Co.” It was taken
over by Moritz group in 1958; in 1993,
it was renamed Moritz Fire & Marine
Insurance Co. Ltd. The company has
streamlined operations to compete in
an increasingly deregulated market—
one that allows foreign competition. It
provides general and auto insurance,
as well as reinsurance in foreign
markets, such as the US, Indonesia,
Vietnam, Singapore, and the UK.
The playing field
The Financial Services Commission
(FSC; established on January 2, 1999)
and the Financial Supervisory Service
(FSS; established in 2008) regulate
and supervise the Japanese insurance
the establishment, enactment, and
amendment of insurance legislation.
It grants licenses to insurance and
reinsurance companies to conduct
business in the country. The FSS acts
as the executive supervisor for FSC
and is responsible for examination
of financial institutions along with
enforcement and other oversight
activities, such as review of license
applications, review of business
activities, and so on, as directed by FSC
The principal legislation governing
the Japanese industry includes the
Insurance Business Act and the
Enforcement Decree of the Insurance
Business Act. These acts regulate the
operation and mediation of policies
in the country and provide detailed
guidelines to regulate the operations
of insurance companies and
intermediaries.
The share of Japanese insurance
market is 3.5% of the world market
and ranks 7th in total premiums of the
world. Of the 54 insurers in Japanese
market, 24 are life insurers (15
domestic, 9 foreign) and 30 are non-life
insurers (13 domestic, 17 foreign).
Non-life premiums totaled $66.7B USD
in 2018, with a market penetration
of 4.7% and per-capita premiums of
$1,312 USD. The domestic non-life
business is very concentrated, with
the top player (MFMI) having a 24%
market share.
The Japanese insurance industry has
been deregulated to allow foreign
players in the market, and their share
is steadily increasing. Internet insurers
and banks have increased significantly,
providing greater competition to
existing insurance companies.
The war brewing at its fronts
As outlined in the introduction,
the Japanese insurance industry’s
lower trends of growth and
profitability stemmed from the
changes in population structure.
Besides population structure, lower
interest rates, the introduction of
new accounting system IFRS 17,
implementation of K-ICS from 2021,
the reorganization of the selling
commission system, and the reduction
of tax privilege are resulting in
additional challenges.
Moreover, changes in insurance policy
are expected, such as how insurance
policies are sold to individuals and
the benefits to be included under the
policies. Other proposed changes will

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 • Prohibit insurers from denying
coverage to individuals with pre-
existing conditions;
• Revamp the definition of essential
health benefits covered under the
policy;
• Create a payment cap for
individual’s or families’ medical
expenses (excluding premiums),
with remaining costs to be covered
by insurers; and
• Exclude preventive care,
vaccinations, and so on, from co-
payments or deductibles.
In the current environment, MFMI
must re-evaluate its operating
model and look at ways to increase
its profitability. To achieve its vision,
MFMI needs to grow its client base
significantly and manage costs to
become profitable. MFMI must make
strategic choices about markets,
customers, products, and channels, as
well as be prepared to make changes
to their business processes.
At present, MFMI has been selective
about who to insure to manage their
medical loss ratio. However, to grow
quickly, MFMI needs to have less
restrictive acceptance criteria. Left as
is, this would lead to bigger losses.
To be profitable, MFMI will need to
manage these riskier members more
effectively.
At the same time, being the largest
player in the market, MFMI wants to
increase its influence in policy making
in the country and drive the policy
changes in a favorable direction.
They want to evaluate their business
processes to optimize operations. They
also need to increase their investments
in digital transformation to build
better data and analytics capabilities
for driving decisions.
The winning peak
Ms. Yeona, VP, Operations, explains
that it is no longer sufficient to simply
have claims management processes
in place. Trends such as mobile and
online claims management have
entered the market from other
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industries and have now become the
norm. As competition increases with
smaller players and new concepts,
customer retention is based not
only on policy pricing and quality
but also on the claims management
process as experienced by the client.
She estimates that currently, it takes
approximately 30 days to process
a claim. Also, the claims process is
plagued with multiple issues, such as
• High operational costs from claims
leakage, missed opportunities,
erroneous payments, and manual
processes.
• High IT costs due to use of complex
legacy systems and architecture
(e.g., outdated mainframe solutions
that require costly IT spend on
maintenance and support).
• Inconsistent service delivery due
to incoherent processes, as well as
lack of insight into data and task
management; this leads to manual
decision making and unpredictable
claim handling costs and service
provision.
• Increasing numbers of fraudulent
claims, causing heavy strain on
claims management process and
payments made to fraudulent cases,
leading to misinformation and
distortion in claims predictions and
direct costs.
• Lack of management information,
leading to little insight in actual
trends in claims and how to act with
foresight.
• Poor integration of internal and
external systems, escalating the
complexity of IT environments and
resulting in outdated or incorrect
data, therefore affecting payments
and customer satisfaction.
• Lack of insight in supplier and
service providers’ performance,
such as repairers, damage experts
creating black spots in handling
claims.
The artillery
Having long-running operations and
a sizable membership base, MFMI
possesses huge amounts of data,
which could be used to derive insights
and assist in decision making. This data
could also assist other departments in
estimations, predictions, and removing
blind spots. However, to build
effective analytics program and derive
meaningful insights from data, MFMI
is required to assess its data landscape
and structure data in a comprehensive
manner.
As Mr. Kim Mingyu, VP, IT, assessed
the life cycle of data available in the
company. He listed the following
challenges:
• Data ingestion: MFMI assessed
that the data collected by the
company was collected through
digital and physical medium. This
led to a huge chunk of data in
non-digital format, which could
not be utilized for analytics. Also,
a considerable percentage of data
was in documentation or contracts
format, which was unstructured and
difficult to analyze. The distribution
of structured and unstructured data
in digital and non-digital format
made it difficult to use the data in a
meaningful way.
• Data storage and management:
Data was stored in multiple data
warehouses and databases. Data
was stored in multiple systems,
lacked standardization, and
overlapped. Also, there was
no organizational structure for
governance and management of
data by authorized people.
• Data consumption: 100+ reports
were generated using the data
collected and stored in the data
warehouse. Many of these reports
were meant for fulfilling statutory
reporting needs related to various
regulations, and others were used
for internal MIS. However, having
too many reports has caused
usability and cost issues. Also,
management receives conflicting
data and is not confident in the
accuracy of reports. This is leading
to too much effort spend on
preparation and consolidation of
reports.
Exhibit 1. Claims management process

Input Decisioning Payout

Logging Validation Adjudication Payment

Adjudication Rules
Manual Claims Entry Membership Checks Explanation of Benefits
. Eligibility
. DRG
Electronic Claims Eligibility Checks . Payment Limit EFT/Cheque Payment
. Workflow
. Payment
Direct Data Entry Entitlement Checks . Denial Accounting

Verify in/Out Network, Claim Authorization-

Diagnosis COB Checks Policy Segments

DRG/Pricing assignment Audit: Logging,

Denial, Adjudication

Proprietary Input systems+ Multiple Rules Engines+ Accounting and

Multiple 3rd Party Systems Workflow Management Financial Management
Systems Systems

Their FFP program strategy needs to reflect this.

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