INSURANCE
Vehicle Telematics: The honeymoon phase is over. The sparkle of vehicle telematics will dwindle in 2022 as consumers and regulators further realize that promised transparency has been perhaps a smoke screen. Originally touted as a pathway to fairer, more controllable personal auto premiums, the fundamental prerequisite to expose volumes of intimate personal driving behavior to insurers and their 3rd party vendors is raising eyebrows with state insurance commissioners. Recently, an increasing number of carriers have submitted rate filings claiming “trade secret” as a justification to run black box algorithms under the radar, mounting calls for additional transparency – such as a requirement to disclose each driving factor measured and how it is used to determine price. As consumer behavior continues to evolved in the new post-pandemic normal and regulators further grasp the transparency gap in vehicle telematics, insurers will face a new wave of scrutiny and demands for openness in how exactly individual driving behaviors influence perceived risk.
OPEN FINANCE
Monetizing
Open Finance: Financial services will shift into high gear. COVID-19 was the unexpected proof of concept needed to accelerate everything digital, led by financial services and retail. The default digital operating models, cobbled together amidst the chaos, show the potential for cost/benefit efficiency. New performance benchmarks have been created. Traditional banking profits may be fragile under protracted low interest rate environments. The outdated product-centric paradigm is being subsumed by more agile fintech players realizing customer-lifestyle-inspired platform business models. With this new “reset”, financial institutions stand to be highly rewarded for their relevance to customers (e.g., Amazon in retail, Google in information, etc.) by the value they deliver as part of a digital ecosystem. API-based data sharing and X-as-a-service offerings will become components that comprise a comprehensive customer service offering. The race to monetize open finance will heat up as bank-led lifestyle apps double and banks prioritize service business models as a form of “embedded finance.”
CFO FINANCIAL INSIGHTS
“Doing more with less” will be truer than ever as labor shortages and employee turnover force greater reliance on automation for accounting tasks and analytical insights. There will be a focus on
leveraging ML and AI to identify trends in data, including data anomalies as they occur. This will enable near real-time opportunities to address unusual activity versus when the books close or the process is audited. As core reporting becomes more automated, finance will be forced to learn new skills to leverage data analytics and drive value to the business users. This includes more data scientists. Future business value will drive investments and spend activity as budgets tighten and are scrutinized. ESG strategies will dominate financial planning in 2022 as companies embrace new standards and regulations. Cryptocurrency will emerge as a viable investment vehicle, but corporations will be reluctant to lead the charge – preferring a wait and see approach.
CUSTOMER EXPERIENCE
Committing to a culture of data-driven customer experience will continue to be the biggest challenge for financial institutions as they accelerate digital transformation. Organizations that don’t address existing data management deficiencies will continue to lag peers and fintech’s in AI-driven customer engagement. Spot successes may be possible but scaling a transformative data-driven customer experience strategy across the enterprise will prove elusive. Strengthening First Party data strategies will be critical as companies navigate the changing landscape of customer data privacy at the legislative and technical platform levels. Every third-party data partnership should be closely examined for its viability given the direction of global privacy policy. Lastly, embedded finance and open banking adoption will present new challenges in data capture and analytics for customer experience. Financial institutions can drive strategic advantage by investing early in data and analytics processes to support these new business models.
DIGITAL TRANSFORMATION: RESPONSIBLE ACTION
Digital Transformation acceleration became a necessity given the COVID-19 crisis. Financial services firms were forced to adjust processes across many of their customer relationship operating model components. Now, they will start to shift to Responsible Digital Transformation:
- Customers: Focus will be on augmenting data security, as well as transparency and control over customers’ data. Using third party data may generate a scenario where customers feel an invasion to their privacy and experience discomfort. Hence, companies will offer more transparent, clear, specific and “easy to understand” privacy policies.
- Management: Focus will grow on digital operating environments to identify and minimize operational, cybersecurity, fraud, regulatory, reputational and strategic risks.
- Regulators: Requirements will evolve to address enhanced governance, incorporating financial inclusion, fairness, sustainability and financial system stability through model supervision, system interoperability and processing, data privacy and potential biases among data, models, employees and decision-making processes.
FINCRIME PREDICTIONS
- Crypto: Regulators will have an increased focus on crypto firms and virtual asset service providers (VASPs) to bolster anti-money laundering and financial crime prevention efforts and develop related regulations.
- FinTech/BigTech: There will be a shift in regulators’ perspective on FinTech and BigTech firms to treat them on par with traditional banks and financial institutions.
- Environmental, Social, & Governance (ESG): Additional responsibility from both financial institutions and regulators on the environmental and social impacts of financial crimes. This will mean 1) enhanced Customer Due Diligence (CDD) and Know Your Customer (KYC) screening to stop doing business with entities that are associated with illegal and unethical environmental and social practices and 2) broader and more intelligent monitoring for ESG typologies / patterns, such as wildlife and human trafficking.
- In the U.S., there will be continued focus to improve the beneficial ownership transparency.
- Wider adoption of advanced analytics with cloud capabilities to better detect and prevent financial crime with the goal of operationalizing ML/AI experiments conducted during the last few years.
(Author):
Lawrence Latvala
Lawrence is the Teradata Practice Leader for Financial Services Industry Consulting in the Americas. The Industry Solution Services practice is organized to develop focused industry solution assets and points-of-view in Financial Crime, CFO Analytics, Open Banking, Insurance, Efficient Risk Analytics, and Digital Payments; create compelling customer business narratives to engage the market; and show clear eminence and presence in social and traditional media. Lawrence joined Teradata from an 800-person fintech firm in which he was CRO, after spending the prior 15 years in market development leadership roles in Financial Services at Capgemini. He has worked extensively in strategy consulting, new business development, domain consultative consulting, service offer development, global strategic sales, revenue operations, and partner alliances. Previously he held analytic and strategic market development roles at Deloitte, E&Y and the US Defense Department. He holds degrees from the University of Chicago and the University of Rochester. He has worked extensively in EMEA and the Indo-Pacific Region. Lawrence resides in the New York City area.
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