Capitalizing on Change.

To take advantage of the emerging borderless, global marketplace, insurers need a solid e-business strategy.

The insurance industry is on the brink of a revolution. Changes wrought by the Internet, the swell of dot-coms and rising customer demands have been accelerating and, as the saying goes, "you ain't seen nothing yet." While becoming an e-business is critical to success, it is also imperative that companies be grounded in real business.

The latest wave of change finds legislators across the globe acting to enable borderless financial services and e-commerce. The Big Bang evolution in Japan and deregulation in the United States are enabling financial-services convergence in the world's two largest insurance markets. Digital signature legislation is gaining ground in every major insurance market; in the United States, the new law goes into effect this month. This new climate is enabling geographic and product expansion, underpinned by the next generation of e-business. Many people view the Internet as the driver of new companies and a new economy. But the real power lies within existing companies' evolvement into e-businesses.

Other forces are at work as well. Mergers and acquisitions continue to reshape the industry, exposing U.S. insurers to the global environment. U.S. insurers lack the experience of European financial-services firms that have learned to absorb huge acquisitions, balancing local autonomy with global competence and operating in many languages and currencies. The industry also faces a host of short-term pressures, ranging from pricing actions to competitive movements to execution of e-business strategies.

Such short-term threats can obscure forward vision. It's important to stay focused on the forces that are creating new demands for insurance and financial services. Global demographics and economics are increasingly favorable as life spans increase and people accumulate more wealth. Conducting business online creates new risks. And every major country is debating the reform of state pensions.

These forces combine to create many opportunities in personal lines areas, such as wealth management, long-term care and retirement planning. In addition, opportunities are opening up for commercial lines, such as enterprise risks, intellectual property insurance and Internet insurance, to name a few. In the aggregate, several hundred billion dollars' worth of opportunity is emerging. But it's not clear who is best positioned to capture this opportunity: insurers, banks or companies not involved in financial services.

Over the past several years, we have seen many innovative Internet-based approaches, including virtual storefronts, shared service centers, virtual companies and electronic intermediaries. But contrary to popular belief, the Internet doesn't change everything. While becoming an e-business is critical to success, it must be grounded in real business. The basics of marketing, underwriting, brand management and other disciplines still apply. The Internet offers new and better ways to perform fundamental business activities. In addition, traditional strategies--such as mergers, alliances and corporate portfolio management--are still very important.

How, then, should insurance companies capture new opportunities and still transform to e-businesses? The key to winning is positioning. A firm, flexible foundation for growth can be built through four actions:

* Rethink customer needs and create new, innovative solutions for clients. Consider that these solutions will increasingly center on the Internet. Rather than starting from existing products, concentrate on customers' core needs and wants, leveraging the advice of both marketing and technology experts from inside and outside the industry.

* Reconstitute your enterprise. Because e-business changes ripple through all parts of a company integrate your processes and ensure that redesign is continuous. Move from vertical to virtual integration, rethinking traditional process models by recombining elements in the value chain.

* Build an e-business infrastructure to support an array of electronically connected business partners and customers. Concentrate on speed through fast design and deployment based on open standards. Make sure your infrastructure is scalable, flexible and secure, as well as able to monitor in real time and adapt to changing user demands on the fly. The evolution of standards makes these types of sophisticated information technology infrastructures viable today

* Involve strategic partners in creating a transformation plan that looks beyond the current turmoil. To paraphrase futurist Alvin Toffler, "If you do not develop a strategy of your own, you become a part of someone else's strategy."

While this new environment may appear threatening, it ultimately results in huge opportunities. The winners will be those who blend innovation, integration and infrastructure to create an organization that will be responsive to customer needs in this continually changing world of insurance and financial services.

Mark A. Breading is a strategist at the IBM Global Insurance practice, White Plains, N.Y.