Solving the global disconnect: Insurers that are taking new technologies across the world should be sure they have a strategy in place. (Technology).

The Internet, e-mail and cellular phones have helped eliminate boundaries that once made sales outside the United States more difficult. As a result, many insurers are establishing technologies across international borders so they can more easily transfer files, transact business and leverage an international presence with global customers and partners.

While some insurers are just beginning to globalize their technological capabilities, others already involved in the venture suggest several steps insurers should undertake when beginning the process.

Focus on Strategy

Many insurers agree that a globalization strategy is the first step in connecting technologies across international boundaries. This strategy identifies the countries in which companies will operate, what hardware and software they'll need, what information will be housed in what locations and how much staff will be required.

"You first need to build a strategy, and from there you can build around it what you need in order to deliver the strategy," said Cynthia Valko, chief operating officer of New York Life International. The company began implementing its globalization strategy nearly four years ago, because it wanted to open new international markets, acquire outside global companies and grow existing businesses in countries in which it was established.

St. Paul Cos. took a somewhat different approach in developing its globalization strategy. "The overall organization will drive a product strategy and product approach, yet we need to intersperse that with a geographic strategy," said Kae Lovaas, vice president of technology underwriting. "Whether its the Southeast United States or Sydney, Australia, you need to then take that broad strategy and understand, execute and implement it on a local basis."

Establishing a global expansion and operational strategy in the context of near- and long-term business objectives is also critical, said William Pieroni, general manager of IBM Global Insurance in White Plains, N.Y. Often when companies begin looking to the future, they become more heavily long-term focused. "For example, companies looking to the Chinese market will notice a growing market. However, with a per-capita gross domestic product of only $500, it will become a 100-year play to reap substantial benefits," he said. On the other hand, being overly focused on generating a next-year cash flow isn't beneficial in a business that often doesn't generate positive free cash flow for seven to 10 years, depending on the country.

Pieroni added that it is critical to optimize strategies in the context of scope, time and resource constraints. "We often think that business and technology professionals can manipulate all three dimensions of any project. However, you should select only two," he said. For example, understanding the balance between scope and time will allow companies to determine how many resources they need to succeed.

Supporting global business strategies with technology is a long and committed process that often involves a multiyear strategy, generally driven from the top of the enterprise. Some companies will not begin to see the payoff until 18 to 36 months after initiating the strategy said John Flynn, who leads the insurance practice for Sapient, a business and technology consultancy. "Setting a clear direction and staying on course is what makes it so difficult and risky," Flynn said.

"Companies should not try to do everything at once, but rather develop and work through a road map," said Philip Roeper, chief information officer for American Re-Insurance Co. in Princeton, N.J. This road map details such processes as planning, issuing requests for proposals, negotiating global contracts with strategic vendors and participating in a global deal to leverage a best-pricing scenario.

Local Ties

Boston-based Liberty Mutual Insurance Co. balances local autonomy with economies of scale by acquiring local companies and supporting them locally. "We want to maintain that local autonomy to a great extent, but, at the same time, we wouldn't be a global company if we weren't looking for economies of scale, bringing what we can bring to the mix to improve what we deliver and how we deliver it to our customers and the broker community," said Timothy Guilbert, senior vice president and chief information officer of international information systems. The answer lies in striking the right balance between allowing local autonomy while still realizing some economies of scale.

Companies taking new technologies across the world need to recognize that they can't force technology into local markets that aren't willing or able to accept it, said Douglas Crowe, manager of information systems for Liberty International. But he said that if the timing is right to be competitive, a company can get technology into new regions ahead of the curve.

In looking to localize ties, insurers believe companies should assess what kind of company they are and how they want to be perceived in the future. "More times than not, most companies are really regional companies engaging in global activities," said Sapient's Flynn. For example, if insurers want to sell property coverage globally, they need to find the common elements across international markets for the product. Flynn referred to the "80/20 rule," in which a company s objective is to have an 80% global and 20% local presence. The 20% focuses on localization, which includes learning local practices, customs and languages and being sensitive to pricing, distribution and regulatory concerns. "I would argue, however, that depending on the company's 80/20 rule, if they believe 80% of their operation is regional in nature, they are not operating in a global way," he said.

Setting Up Infrastructure

The communication infrastructure is one of the biggest expenses, but it's a top priority. A company should establish a consistent and secure network-computing infrastructure early on, said Roeper of American Re, which set up its globalized intranet nearly five years ago when the company was acquired by Munich Re. From there, companies can build more complex developments, such as applications and data warehouses--all of which will add richer value to the technologies.

"One of the largest challenges in globalization centers around hardware and software applications, because different types are available in different countries, therefore leading to the need for different types of middleware or gooey systems,'" said Patricia Tilton, a partner and a national service leader for the insurance practice of KPMG LLP, a professional services firm. Mapping data from one country to another and transferring multiple currencies across countries also can pose challenges. But most applications are now standardized in the English language. Security and privacy will be key areas of focus in globalization, Tilton said.

"While it's easy to say that we're going to be on one common platform, the challenge is that not all vendors are as rich and robust in their support globally, said Joseph Perno, senior vice president of international and corporate systems of Warren, N.J.-based Chubb & Son. In addition, smaller vendors often have a more limited scope than larger vendors' wider geographic reach. Perno suggests that insurers looking to go global should begin with their basic, underlying infrastructure needs and standardize from there. "Without it, you just can't succeed," Perno said.

Chubb, which has 135 office locations in 31 countries, began to establish its cross-border infrastructure by standardizing on the Windows NT operating system for its desktop worldwide. In addition, the company standardized Lotus Notes as its global e-mail system, built in an application system for a Multinational Resource Group that runs in the Notes environment and is now available via the Internet, and provided password protection across all of its global branch offices. Chubb manages its own dedicated network in the United States and relies on third parties to manage networks located outside the country by moving data from a central location around the globe to Chubb's headquarters.

Developing Standards

"Be pragmatic about the application of standards around the world, but be forceful for those things you believe are truly important and bring value to the business," said Liberty Mutual's Guilbert.

Building standards into a strategic plan is another important step. The Association for Cooperative Operations Research and Development, a global, nonprofit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance and related financial-services industries, recently globalized standards for this purpose. "The appetite for global standards is out there right now," said Susan Ousey, senior vice president for ACORD.

Developing standards gives companies the autonomy they need at the local level, while having a worldwide infrastructure so data can be shared. Ousey said the strategies should take into account the level of autonomy needed to serve different constituencies locally around the world and meet varying country differences, such as regulations and types of insurance required.

The payoff for implementing standards is that it removes the need for companies to establish individual connections with every one of their trading partners, Ousey said. Most companies think of this as a one-time initial investment. "After that, their flexibility and options for adding in more trading partners with no investment is astronomical," she said, ACORD helps several global companies to see how standards can streamline their relationships and create flexibility for adding or changing trading partners as needed.

Establishing standards for technologies that don't require local tailoring is also important to companies looking to go global. It comes down to a balance of scale and scope of economies, said IBM's Pieroni. "You never want to limit the degrees of freedom that clients have, but with such things as middleware, databases and services, it can often be liberating to a local country manager if they don't have to worry about that."

Management and Staff

It's also important to establish management responsibilities, including planning, corporate backing, funding and developing a clear vision.

One of the first--and biggest--challenges some companies face when globalizing their technology is not getting support from management to accomplish the process. "We had to be able to get senior management to buy into the concept that we're going to gain from this--not take anything away from it but rather add to it," said New York Life's Valko. The company then spent another six months demonstrating to the rest of the organization that the process was going to be a long-term answer to growing the business, thus allowing the same type of flexibility it had in the past.

Some insurers have set up teams to help strategize the globalization and learn about various cultural needs and requirements. Team members are drawn from various departments and have global experience, project-management abilities and technical expertise. "You need to get out there and know their business--not only the technologies, but how they work, their business operation and changes they have on the business side," said George Savarese, vice president of international operations for New York City-based MetLife Inc. The company has several virtual teams composed of both information technology and business staff in place to work with countries in connecting global technology operations.

Many globalization strategies fail because companies forgo planning for recruiting, transferring and retaining employees and growing knowledge capital. "Often, large, and sometimes small, insurers fail to understand how difficult it is in new markets to identify high-skill, high-will people to assume some of these positions," said IBM's Pieroni. "Often, brand means less, the market isn't as mature, and other insurers already have these people in place, making hiring more difficult, because loyalty means a lot more in some parts of the world," Pieroni said.

Forming Partnerships

Selecting the right integration partners is also crucial. Companies should select partners based not so much on size or balance sheets but rather on their staffs' experience with implementing, developing and running infrastructures for multinational companies. "It's extremely important that these partners have local contacts, whether with local telecommunication companies or service providers, to have interconnections occur in a timely fashion and with appropriate intraoperability," said Paul Toldalagi, chief technology officer for e-business for Zurich's Global Asset Group.

Forming partnerships within the company is also important. "It is important to ensure that you build a seamless link between IT and business operations," said James Shepherd, e-business leader for the global life and health segment of GE Employers Reinsurance Corp. Both areas add input and expertise necessary to complete globalization strategies, and companies have faced the challenge over the years of trying to bring the two together to form strong ownership and sponsorship for these projects. "You are aiming for a win-win situation for both, not where one is just simply a supplier to the other," he said.

While KPMG's Tilton believes insurers' venture into globalizing technologies remains in its infancy, she expects that more insurers soon will become global technology players.

In doing so, Tilton suggests that insurers focus on two important areas--understanding which countries they are operating in and the particular businesses in which they're operating. KPMG believes the winners, and possibly survivors, of the new decade will be customer-centric insurers that are truly able to compete globally.

Sapient's Flynn agrees, adding, "If you plan to be pervasive in penetrating into the global market, spend more time up front thinking about what your global strategy will be, what the supporting business models will be, what supporting operational and technological platforms will need to be developed and how you will execute against the plan."

RELATED ARTICLE: Globalization Challenges

Jurisdictional and regulatory boundaries, multiple languages, limited technologies, definitional differences and security concerns are among the challenges insurers must resolve to reap the benefits of setting up technologies across international lines.

Varying e-commerce capabilities--such as limited Internet access, nonexistent cross-border cellular phone service and expensive and limited bandwidth--among countries are some of the more formidable challenges. Some markets have limited interest or capability to support these developments. "The limiting factor of globalization is that one size doesn't fit all," said Timothy Guilbert, senior vice president and chief information officer of international information systems for Boston-based Liberty Mutual Insurance Co.

To meet its growing global needs, Liberty Mutual created a shared Internet environment by building solution sets and an infrastructure environment, including security measures, virus scanning, e-commerce infrastructure and Web and application servers that can be used across different markets. Today, more than 95% of the company's international operations are standardized on one e-mail platform.

Regulatory requirements also vary significantly by country. Therefore, insurers venturing into the global arena must understand local laws and requirements before beginning. New York-based MetLife Inc., which recently set up hosting centers in Amsterdam, Singapore and Brazil, selected Amsterdam as its European location because local regulations required that the company be within the European Union to serve any of the European member countries. According to EU regulations, data can't be stored outside the EU's boundaries, said George Savarese, vice president of international operations.

Security also can be challenging when crossing global borders. Many European countries have strict rules about privacy and security, while several Latin American and Asian countries are more lenient. Zurich Group implemented strict security policies and standardization perimeters within its infrastructures, including standardized fire walls, to guard its various business units against outside attacks. But after recognizing that viruses and other forms of attacks can be brought in and propagated internally through weaker units just as easily as they can from outside sources, Zurich developed multiple lines of defense internally, with fire walls and various security technologies to isolate different business units, said Paul Toldalagi, chief technology officer and head of e-business for Zurich's global asset business group.

"We are only as strong as our weakest link in this instance," Toldalagi said. Zurich spent five months aggressively enhancing its capabilities through new mechanisms of global monitoring and new forms of technology security-management governance and new practices to assist units with capabilities needed to investigate or respond to these attacks.

St. Paul Cos. has examined the security and privacy issues in the many countries in which its technologies are internetworked. One example is that the company obtains authorizations and ensures that agreements are in place to meet the EU directive's requirement that sharing of any personally identifiable information must first be authorized by data subjects. From a security and recoverability standpoint, St. Paul looks at information-technology risks as a corporate issue, said Claire Hoyum, assistant vice president of information security and corporate information technology services. "That means we look at the standardization of our approach across the corporation and are paying increased attention to the tools we implement and processes we've put in place to ensure they are consistent across the organization." St. Paul is increasingly conscious of transborder data flow and the requirement that wherever data is transferred from jurisdictions with specific security and privacy requirements, for example the EU , the appropriate controls and legal agreements are in place.

Expense and time also can pose challenges. American Re-Insurance Co., in Princeton, N.J., which deploys technology to about 70 sites in 30 countries in its global network, had little to no difficulty setting up technologies in more than 50% of its locations. But there was a three- to six-month lead time for some of the other locations to get equipment up and running, said Philip Roeper, chief information officer, adding that in some countries the challenge is a result of limited or unavailable technologies and high-cost products. "However, these [challenges] have improved during the last five years when we first began rolling out our global network and negotiating global contracts." Since that time, American Re has globalized technologies in several countries it was unable to venture into only five years ago.

Cultural differences also bring varying challenges to companies looking to set up technologies worldwide. Various time zones, languages, cultures and interpretations of issues vary from country to country. "One reason some companies have failed at globalization is that they have ignored differences, such as geographic sensitivities, culture and languages, which often make cross-border endeavors difficult," said William Pieroni, general manager of IBM global insurance in White Plains, N.Y. Understanding countries' local cultures and their people, while trying to integrate and complement what they bring to the table, is critically important and can't be overlooked, he added. One way that most insurers have met cross-border language challenges is by standardizing technologies and operations in the English language worldwide.

Many insurers also face the challenge of definitional issues. "Even when we all speak the English language, we have different terms that have different meanings," said Kae Lovaas, vice president of technology underwriting for St. Paul Cos. She suggests that insurers can avoid these misunderstandings by establishing common definitions that can be used on a global scale, clearly defining what these terms mean and not making assumptions about their meanings.