Business process improvement for banking and insurance using simulation software

A picture of a bank

The banking and insurance sectors face a variety of uncertainties and challenges due to the confluence of external factors. Apart from financial instability, there are internal problems that banks and insurance companies should address.

In this blog post, you will find out how banking and insurance business process management can develop their sales operations, resource utilization, corporate education, customer service level, and more using AnyLogic as business process improvement software.

What to expect from the global banking industry

The sudden failures of Silicon Valley Bank and Signature Bank in the USA and the loss of market confidence in a globally systemically important bank, Credit Suisse in Europe, have been a powerful reminder of the challenges facing the banking sector across the world.

Uncertainties abound due to an unprecedented confluence of factors—supply chain disruptions, the rise in inflation, and tightening monetary policy across the world. And the potential for a recession or stagflation in certain economies is still high.

 A report from the Deloitte Center for Financial Services

A report from the Deloitte Center for Financial Services: 2023 banking and capital markets outlook

To overcome these issues, banks will need to pursue new sources of value beyond product, industry, or business model boundaries. The new economic order will require bank managers to be courageous and proactive, stay ahead of the curve, and envision possibilities beyond the fog of uncertainties.

How to address internal banking issues

Besides external instability, banks might face some problems inside the business that are connected to human resource utilization and education, optimization of operations in the back office and sales processes, etc.

The multimethod simulation tool AnyLogic gives an opportunity to successfully resolve banking issues. These include the management of risks, liquidity, ATM network operations, corporate customers’ balances, human resources, new product launches, etc. In addition, simulation enables managers to estimate bank budget performance and forecast financial results and bank KPIs.

Learn more in the paper “Application of AnyLogic simulation tool in the sphere of banking” →

Resource utilization

AnyLogic enables stakeholders to model the lifecycle of consumer office and online credit applications. In the consumer credit model below, the verification process involves three stages: scoring, personal review, and credit rating inspection. By using the results of multiple model runs, it becomes possible to estimate approval rates and determine the optimal number of bank employees.

Take a look at the Cloud model:

Consumer Credit (source files available)

Another case of applying simulation for better resource utilization is back-office operations. The bank wanted to find out if merging these two divisions of employees in the back office would be beneficial. Thanks to the simulation model, they could compare the efficiency of the “as is” (current situation) and “to be” (possible merger of the two organizational units) scenarios. The graphs showed what would happen in a normal working day for both scenarios. The simulation showed that the merger of the two current operating divisions into one would be advantageous.

Learn more in the case study of Banca d'Italia →

Sales processes

The process of selling is extremely important for all businesses, particularly for banking and insurance. This process can be modeled with AnyLogic simulation software in order to visualize the sales funnel and evaluate the effectiveness of the sales operations.

The model below shows the sales process in a business where clients are to be reviewed by the company before the company enters into relationships, e.g., insurance, banking, leasing, etc. The stages of the process are modeled in the statechart of a customer: an initial contact, a quote, and a credit review. The customer may leave at each stage, or the company may reject the customer.

The model helps investigate how the skill level and size of the sales force and the credit review team affect performance.

Check out the model:

Sales Funnel (source files available)

Corporate education

Employee training is an essential activity to improve service quality and process effectiveness for banks and insurance companies.

Corporate education can be represented in the AnyLogic model with a number of regional branches and high employee turnover. It allows the engineers to find out the level of an employee’s education over time (fraction of fully trained, training overdue, etc.).

The model below includes branch locations, employee types and numbers, individual education plans, trainers, and trainer competencies imported from a database. The branches can be viewed on the GIS map as well as by an individual employee or trainer.

Look at the AnyLogic model:

Corporate education (source files available)

Insurance business process management

One of the leading commercial and personal insurance companies wanted to improve its business processes. For this purpose, they developed a methodology called Process Wind Tunnel (PWT), which uses a data-driven approach, including discrete-event simulation. This PWT contained the current state analysis, future state design, and process automation continuous improvement.

AnyLogic was used to build data-driven discrete-simulation models. The developers created the model, did the scenario analysis, looked at new design options, and came up with an optimized or improved design. In process automation, the system is analyzed end-to-end to identify areas for targeted or complete automation.

Read more in the case study of AIG →

Business and customer value

An insurance company developed a digital twin for understanding the value to the insurer (V2I) and the value to the customer (V2C) with the use of simulation and AI. AnyLogic software is a powerful tool for creating and integrating a digital twin that provides insights, supports decision-making, and helps develop business processes.

With the help of AnyLogic, the model developers simulated the 10-year survival rate for V2C and V2I, the yearly decrease of V2C and V2I, as well as their correlation, to estimate the results and make decisions based on the model. Managers could also investigate how price changes affect value, who the target customer segments are, and how to better match risk to price using simulation modeling.

Find out more in the video presentation of CSAA Insurance Group →

Conclusion: simulation for business process management in banking and insurance

Banks and insurance companies have to permanently address various internal and external issues. This means that banking and insurance management should stay ahead of the curve and envision possibilities beyond uncertainties. To do that, bank and insurance stakeholders can use simulation for business process management to improve their current operations and forecast financial results.

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