Keep up with the changes: a survey of IT executives reveals how technology is the competitive sweet spot in the global financial market.In many ways, insurance executives must feel like kids in a candy shop. Aging populations in Western nations, deregulation DeregulationThe reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Notes: Traditional areas that have been deregulated are the telephone and airline industries. of key markets, spectacular growth of the middle class in Asia and consumers embracing the use of new technologies are among the trends creating growth opportunities for insurance companies--at least for those that can scale to take advantage. Therein lies the problem. For some insurers, these opportunities--these shelves of sweet goodies good·y 1 Informal interj. Used to express delight. n. also good·ie pl. good·ies Something attractive or delectable, especially something sweet to eat. may be just beyond reach. Many insurance executives believe that technology infrastructure--especially legacy systems--is a significant impediment A disability or obstruction that prevents an individual from entering into a contract. Infancy, for example, is an impediment in making certain contracts. Impediments to marriage include such factors as consanguinity between the parties or an earlier marriage that is still valid. to progress as they attempt to take advantage of an increasingly global insurance industry. It is for this reason that insurance companies, especially many in Europe and North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , are investing in new systems. Which types of systems are leading insurers investing in and for what purpose? pose? What is their vision for leveraging technology in the first decades of the 21st century as the industry landscape rapidly changes? To find out. BearingPoint contracted with Datamonitor to interview technology executives at leading global insurance companies. The goals were to find out how these insurers are transforming their operations for the new century and to articulate a vision of how they can succeed in the new century's challenging environment. To capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. the opportunities in this changing marketplace, leading insurers are fining up to realize all the advantages--new markets, scale economies, open computing See open system and open source. , automation and multisource operations--while avoiding the downside--increased risk, commoditization Commoditization 1. A situation when illiquid financial contracts are changed or modified in a way that promotes trading and results in a more liquid market. 2. Making a product into a commodity. Notes: 1. , and more demanding and disloyal customers. "Industry Vision" on page 64 highlights the changing characteristics of the global industry. Although regional and niche insurers will remain viable in the 21st century, economies of scale will concentrate premiums, assets and global market share among a smaller group of very large insurers. Technology will help the large companies develop and distribute products on a mass scale. Partnerships and strategic agreements, rather than mergers and acquisitions, will support them "one-stop shop One-Stop Shop A company or a location that offers a multitude of services to a client or a customer. The idea is to provide convenient and efficient service and also to create the opportunity for the company to sell more products to clients and customers. " model. Independent channels increasingly will be the source for life products. In the next 10 years, captive agents largely will disappear in the West, while, in developing economies, they gradually will be overtaken by banks, in alliance with both domestic and foreign carriers. Novel partnerships between insurers also may emerge, particularly in a rapidly changing China. The Internet and wireless communications wireless communications System using radio-frequency, infrared, microwave, or other types of electromagnetic or acoustic waves in place of wires, cables, or fibre optics to transmit signals or data. likely will emerge as serious sales channels; they are beginning to make inroads inroads Noun, pl make inroads into to start affecting or reducing: my gambling has made great inroads into my savings inroads npl to make inroads into [+ in nonlife sales today and, in 10 years will begin to take market share from independent channels. Insurers in Japan and China, where use of wireless transactions is ahead of that in the West, have begun to offer travel insurance via wireless accounts, allowing for impulse purchases An impulse purchase is an unplanned or otherwise spontaneous purchase. One who tends to make such purchases is referred to as an impulse buyer. Marketers and retailers tend to exploit these impulses which are tied to the basic need for instant gratification. on the fly. Furthermore, the motion of distribution itself will change, as it becomes less about transferring and selling products and more about sharing information, whether in a business-to-business or business-to-business-to-consumer context. IT's Evolution The insurance industry is poised to benefit from a number of new technologies, as well as the novel application of existing techniques, to realize greater customer-centricity, improve information-technology flexibility and remain competitive in a rapidly changing industry: "Strategic Vision" on page 66 highlights how these key technologies can change in the next five to 10 years. The interviews with insurers repeatedly illustrate the importance of IT and business alignment in establishing effective long-term technology strategy. Moreover, while the centralization cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. of business and IT strategy has fostered more effective strategic thinking, the development of the Internet, Web services (1) Loosely, any online service delivered over the Web. Such usage appears in articles from non-technical sources, but not in IT-oriented publications, because definition #2 below describes the correct use of the term. and middleware Software that functions as a conversion or translation layer. It is also a consolidator and integrator. Custom-programmed middleware solutions have been developed for decades to enable one application to communicate with another that either runs on a different platform or comes from a is supporting the execution. Business and IT executives can now realistically envision the day when it will be possible to remove the management, maintenance and even development of technology applications from an organization, leaving the insurer to concentrate on customer service, product innovation, sales and marketing, branding, and corporate strategy. Who Is Leading the Way? With the vision of the next five to 10 years taking form, the question remains, how do ww get there from here? Or, as some in the industry might lament, can we get there from here? Leading companies are making progress toward the 21st century vision by establishing new techniques to address the most pressing business concerns. Customer Management In the next 10 years, insurers likely will establish a uniform channel strategy in which consumers can buy insurance through an agent, a bank, the Internet or a wireless/PDA device. Attention will begin to shift to more advanced customer analytics that record, analyze and manage all aspects of the customer/insurer relationship, thus improving cross-sell opportunities and fraud detection. However, insurers must first make sure channels are well established. The failure of customer relationship management several years ago to deliver the expected return on investment Expected return on investment The return one can expect to earn on an investment. See: Capital asset pricing model. has left some insurers dubious of expectations laid out by vendors. The use of CRM (Customer Relationship Management) An integrated information system that is used to plan, schedule and control the presales and postsales activities in an organization. does, in fact, hold significant promise for establishing a deeper customer relationship, but it is clear that insurers must establish the framework before they can use the tools. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a leading Italian nonlife insurer, the only expectation insurers should have, "is that the channel between the insurer and the client will not always be the same." Therefore, supporting as much interaction as possible between the various channels is of utmost importance. Placing the customer, rather than the channel, at the center of an insurer's customer service strategy will be achieved by establishing other priorities for technology initiatives, such as architecture, automation and data integration, that provide "a greater global view of the customer." The need for a global view will be essential in the 21st century. Insurers will increasingly need a full understanding of their customers' buying patterns and evolving needs and provide more consultation on a growing product portfolio. According to Genworth Chief Information Officer Scott McKay
Scott McKay (born c. 1961) is a Canadian politician, the current leader of the Green Party of Quebec, and a former Montreal city councillor. , there is "an entirely new operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. being created for insurers, with many not having the capabilities to service this new landscape." ING's U.S. life insurance division is actively planning its Web strategy around the changing needs of these customers--"certainly, servicing targets in the upper-middle/upper class who are saving for retirement is a priority," said Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. Catherine Smith Catherine Smith (or Catherina Smith) was an English novelist and actress, best known for her Gothic fiction. Almost all that is known of her is that she came from a wealthy family, and had acted at the Haymarket Theatre in London. . The key for ING is to establish the direct channel not for sales, but for more streamlined access to account information on an increasingly diverse and complex product portfolio. McKay also is keen on these automation technologies, citing voice recognition as supporting significant efficiency and security in Genworth's long-term-care applications. "This is an industry known for telling people, 'Let me send you the form.' With voice recognition software, I record that voice on the phone and I attach it to the file, so that conversation is an even better authentication (1) Verifying the integrity of a transmitted message. See message integrity, e-mail authentication and MAC. (2) Verifying the identity of a user logging into a network. than a signature." Process Automation Insurers are introducing automation into routine tasks, but the next phase will be to establish true straight-through processing straight-through processing The direct exchange of cash and securities. Straight-through processing is a major objective for cross-border transactions that are generally much more costly to settle compared to domestic transactions. in most insurance activities, at both the processing and analytical levels. The advent of business process-management technology already is having an impact on many areas of both manual and electronic work flow. The multicontact-point and labor-intensive claims-processing function is the primary target of automation in nonlife operations. Automation was cited as a breakthrough technology idea by several respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. . According to several participants, the underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. process stands to reap early benefits from automation. However, participants cautioned that process must not be confused with enablement. In order for automation to finally replace manual processes, the industry will have to move beyond simple enabling technologies, such as imaging, that perform some necessary functions but are not true automation. "When I use imaging," said Genworth's McKay, "I am in essence locked in to using electronic paper. Contrast that with getting 100% of my data into a system. Now I can turn loose and use all kinds of digital decision engines and process simulation tools and unlock layer upon layer of additional productivity and service levels by being able to automate things." Enterprise Architecture The 21st-century insurer needs to establish a far more predictable IT environment. Because the establishment of enterprise architecture supports the very notion of IT/business strategy alignment, it may be the most important long-term technology investment an organization can make. Executives see enterprise architecture as synonymous with synonymous with adjective equivalent to, the same as, identical to, similar to, identified with, equal to, tantamount to, interchangeable with, one and the same as service-oriented architecture See SOA. . The development of enterprise architecture, however, is only one piece of the technology puzzle for insurers. High-impact risk exposure and other underwriting data will need to be stored, classified and callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. for use in risk profiling operations. The key at this stage is moving data to a warehouse, essentially a component, or service, within an architecture, from which it can be organized and extracted to meet business objectives. Channels According to survey respondents, the greatest distribution challenge for insurers over the next five to 10 years will be to provide competitively differentiated access to information. A large European insurer believes that because of the B2B2C B2B2C Business to Business to Consumer nature of insurance sales, it will be imperative for insurers to open their back office to agents and policyholders alike. An insurance company will essentially act as an information network hub See hub and hub vs. switch. , with agents, banks and policyholders as the spokes, able to initiate or respond to requests independently. Third parties on both the sales (agents and financial advisers) and service (fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. and settlement operations) sides also will have access, as claims increasingly become automated. Many of the leading insurers that participated in the interviews have had agent portals up and running for several years as part of their acquisition integration or captive agent replacement strategies. A large U.S. property/casualty company recently completed such a project for its agents in all 50 states and is now updating Web access for customer information that will allow customers to obtain information on everything from new products, to policy changes, to claims status. Communications Advances in communications technology Noun 1. communications technology - the activity of designing and constructing and maintaining communication systems engineering, technology - the practical application of science to commerce or industry are giving insurers the ability to realize a host of new applications for internal communications  This article's grammar usage needs improvement. Please edit this article in accordance with Wikipedia's . , Voice over Internet Protocol See Internet and TCP/IP. (networking) Internet Protocol - (IP) The network layer for the TCP/IP protocol suite widely used on Ethernet networks, defined in STD 5, RFC 791. IP is a connectionless, best-effort packet switching protocol. and wireless systems. According to a large European nonlife carrier that has implemented a VoIP initiative to strengthen the link with its agents, "VoIP will happen. Having voice and data on the same network enables more flexible communication between employees and cost reduction." The Asian market is at the forefront of wireless business communications, both for information sharing See data conferencing. and for transactions. According to China Pacific Insurance Co. Group CIO CIO: see American Federation of Labor and Congress of Industrial Organizations. (Chief Information Officer) The executive officer in charge of information processing in an organization. Richard Cheng, "Mobile is part of the Chinese culture, plus the infrastructure is here. Everyone has cell phones and PDAs, which will be the key information contact points with the consumer." Sourcing Recently, insurers have begun viewing outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. as more than a foundational cost-cutting measure. The separation of IT management from IT strategy is allowing carriers much greater flexibility in moving other operations and processing functions outside of the organization. The interviews with insurers indicate that while faith in outsourcing agreements will increase, outsourcing itself will remain an option, determined by strategic factors unique to each organization. Long-term, comprehensive IT strategies that include enterprise architecture, process automation and customer analytics will be essential to insurance companies as they bridge the gap between the 20th and 21st centuries. Still, to realize the benefits of these projects, industry leaders first must recognize their limitations and properly understand their potential impact on meeting business objectives. Encouragingly, technologies such as open source computing computing - computer and SOA (1) (Start Of Authority) The first record in a DNS zone file. See DNS records. (2) (Service Oriented Architecture) The modularization of business functions for greater flexibility and reusability. are reaching the stage of maturity at which they can contribute to project success. By leveraging these technologies and staying the course once momentum is gained, leading insurance companies can perhaps be first in line to enjoy the sweet taste of success as the new global opportunities unfold unfold - inline . Key Points * IT executives believe legacy systems are roadblocks to inroads into the global insurance industry. * In 10 years, Internet and wireless communications will pull market share from independent channels. * Insurers' greatest distribution challenge will be providing competitively differentiated access to information. Outside Influences The global insurance industry is evolving in reaction to forces reshaping global supply and demand, market competition and technology. Major trends affecting insurers in the 21st century are: Socioeconomic so·ci·o·ec·o·nom·ic adj. Of or involving both social and economic factors. socioeconomic Adjective of or involving economic and social factors Adj. 1. change. The aging of populations in Western nations will create vast new opportunities for life insurance in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and Europe. Meanwhile, the modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, of the large Asian economies will create a new, multibillion-member middle class. According to China Pacific Insurance Co. Group Chief Information Officer Richard Cheng, the "Chinese government Ever since Republic of China founded in January 1st, 1912, China has had several regional and national governments. List
(De)regulation. The convergence of financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. set in motion by industry deregulation has resulted in consolidation, new markets, new competitors and the creation of interrelated in·ter·re·late tr. & intr.v. in·ter·re·lat·ed, in·ter·re·lat·ing, in·ter·re·lates To place in or come into mutual relationship. in , cross-industry value chains. To establish operations in high-growth geographies, insurers are increasingly entering into novel strategic alliances that position them in new markets according to the strengths of both or all parties. Technological evolution. The most important advance for information technology may be the development of networking technology that is poised to deliver greater economies of scale and efficiency and reduce some operating costs operating costs npl → gastos mpl operacionales to the vanishing point. Meanwhile, wireline and wireless communications based on Internet Protocol will offer much greater flexibility in connecting the insurers with clients, sellers and each other. Key IT Issues to Address With the global financial services industry at the leading edge of a once-in-a-generation growth opportunity, leading insurers are showing how technology may become a competitive sweet spot for true transformational change. However, to seize the opportunity, insurance companies must address several key issues: Establish a clear, achievable vision that includes measurable steps. Increasingly, corporate boards and senior executives are requiring detailed business cases for new information technology initiatives, including the ability to show that projects will generate a healthy return on investment within very tight time frames. The transformation plan cannot be a "big bang big bang Model of the origin of the universe, which holds that it emerged from a state of extremely high temperature and density in an explosive expansion 10 billion–15 billion years ago. " approach. Be realistic about what capabilities and resources need to be in place. Management needs to understand what types of competencies, skills and resources are necessary to execute toward the vision. A company's planning processes must encompass the IT initiatives to make sure the organization is equipped to carry them out. Develop a culture of follow-through on a long-term basis. It is critical that senior management understand the full price of failing to see projects to their conclusion. Overcome organizational inertia inertia (ĭnûr`shə), in physics, the resistance of a body to any alteration in its state of motion, i.e., the resistance of a body at rest to being set in motion or of a body in motion to any change of speed or change in direction of . If transformational projects are to survive, senior executives must provide strong, unwavering support. Learn to cut losses when necessary. Chief information officers and senior executives need to re-evaluate their portfolio of projects continually to make sure they are on track and that both near-term and long-term objectives are being met. Contributor Paul McDonnell is senior vice president, managing director and insurance segment leader for BearingPoint.
Industry Vision
How the insurance industry is changing.
20th Century Visionaries 21st Century
Customer * Imperative: [right arrow] * Imperative:
Management channel analytics
provision * Price- and
* Price-led service-led
* Acquisition * Retention
Process * Largely manual [right arrow] * Largely
* Workflow/ automated
digital * Business process
documents management
engines/
straight-through
processing
Enterprise * Point-to-point [right arrow] * Service-oriented
Architecture networking architecture
* Back-office * Reference/event
functionality driven
resides in (portfolio
legacy management,
* Centralized underwriting)
computing * Distributed/grid
computing
Information * Siloed [right arrow] * Integrated
* Product-defined * Customer-defined
* Structured vs. * Automated and
unstructured dynamic taxonomy
* External fraud * Internal/auto
detections/ fraud/claims,
claims identity theft
Channels * Manual [right arrow] * Portal front end
interaction (B2B2C)
* Disconnected * Shared back
operations office
* Limited partner * Partner network
interaction (claims,
underwriting)
Communications * PBX [right arrow] * Voice over In-
* Phone/fax ternet Protocol
* Manual * Wireless LAN,
transactions field agents,
claims
settlement
* Electronic
transactions
Sourcing * Internal [right arrow] * Best sourcing-
dominant- strategic
tactical * Centralized
* Long-term procurement
outsourcing * Standardized
contracts
Source: Datamonitor
Strategic Vision
How key technologies will be used to address business concerns.
20th Century Visionaries 21st Century
Markets * National [right arrow] * Global
concentration concentration
* Growth in * Growth in
developed developing
markets markets
* Insurance/some * Cross FS global
FS integration alliances
Competition * Polarized: life [right arrow] * Dynamic: life vs.
and non-life non-life
* Insurer vs. * Insurer vs ???
insurer * Total
* Mutual model demutualization
Distribution * Channel [right arrow] * Channel
segregation integration
* Direct/ * Direct/
Independent on Independent on
unique platforms common platforms
* Distributing * Distributing
products products
Products * Internal [right arrow] * Internal
strategic/inter- strategic/exter-
nal development nal development
* Complex * Simple/
* Insurer-driven standardized
* Customer-driven
Risk
Management/
Underwriting * Affinity groups/ [right arrow] * Fully-tiered
some tiered underwriting/
underwriting automated
* Reactive * Predictive
modeling modeling
* Actuarial risk * Operational risk
focus focus
Technology
Strategy * Group: [right arrow] * Group:
decentralized centralized
* Business: * Business line
Isolated/some federation/mainly
integration integrated
* Geography- * Geography-
defined agnostic
* IT as "client" * IT as "partner"
Source: Datamonitor
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