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21 st century insurance firm bearing point

  2. 2. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRM IN THIS WHITE PAPER: INTRODUCTION INTRODUCTION 1 Insurance executives in many ways must feel like the A NEW ERA FOR INSURANCE 2 proverbial kid in a candy shop. Aging populations in Western nations, deregulation of key markets, THE EVOLUTION OF IT: FROM 20TH TO 21ST CENTURIES 3 spectacular growth of the middle class in Asia and consumers embracing the use of new technologies IT/BUSINESS ALIGNMENT 4 are among the major trends creating huge growth STANDARDIZATION, WORKFLOW AND opportunities for insurance companies—at least for NETWORKING TECHNOLOGIES 5 those that can scale to take advantage. WHO IS LEADING THE WAY? A VIEW ON THE GROUND 5 Therein lies the problem, however. For some insurers, CUSTOMER MANAGEMENT 5 these opportunities—these shelves of sweet good- PROCESS 6 ies—may be just beyond reach. Many insurance executives feel that technology infrastructure—espe- ENTERPRISE ARCHITECTURE 7 cially legacy systems—is a significant impediment INFORMATION 8 to progress as they attempt to take advantage of an CHANNELS 9 increasingly global insurance industry. It is for this COMMUNICATIONS 9 reason that insurance companies, especially many in SOURCING 10 Europe and North America, are investing in enabling CONCLUSION 11 new systems. GLOBAL MANAGEMENT AND TECHNOLOGY CONSULTING FOR Which types of systems are leading insurers invest- TODAY’S BUSINESS ENVIRONMENT 12 ing in and for what purpose? What is their vision for leveraging technology in the first decades of the 21st ABOUT THE AUTHORS 12 century as the industry landscape rapidly changes? Is too much emphasis being placed on problems asso- ciated with legacy systems? To find out, BearingPoint contracted with Datamonitor to interview technol- ogy executives at leading global insurance companies. The goals of this qualitative research were to find out how these insurers are transforming their operations for the new century and articulate a vision of how they can succeed in the new century’s challenging environment.1 BEARINGPOINT
  3. 3. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMThis global survey report explores the direction of the are increasingly entering into novel strategic alli-global insurance industry over the next five to 10 ances that position them in new markets accordingyears. The observations of industry leaders presented to the strengths of both or all parties.here provide a vision of what the 21st century insur-ance company may look like and how IT is being Technological evolution. The innovation spurredused to achieve that vision. by the creation and expansion of the Internet has changed the business landscape in profound ways. It has enabled an entirely new business operatingA NEW ERA FOR INSURANCE model and fundamentally altered consumer behav- ior. The most important advance for IT may be theThe evolution of the global insurance industry is a development of networking technology that is poisedreaction to the forces reshaping everything from global to deliver greater economies of scale and efficiencysupply and demand to market competition to technol- and reduce some operating costs to the vanishingogy. The most progressive insurers are taking steps point. Meanwhile, wireline and wireless communi-to capitalize on unprecedented growth opportunities cations based on Internet Protocol will enable muchwhile avoiding the risks. The major trends affecting greater flexibility in connecting the insurers withinsurance in the 21st century are: clients, sellers and each other.Socioeconomic change. The aging of populations To capitalize on the opportunities in this market-in Western nations, combined with the reduction or place, the best insurers are lining up to realize all theelimination of state and corporate pension plans, will advantages—new markets, scale economies, opencreate vast new opportunities for life insurance in the computing, automation and multisource opera-United States and Europe. Meanwhile, the moderni- tions—while avoiding the downside—increased risk,zation of the large Asian economies will create a commoditization, and more demanding and disloyalnew, multibillion-member middle class. China may customers. Figure 1 highlights the changing charac-offer the most dramatic example of the growth of teristics of the global technology industry.wealth because the inclusion of China in the WorldTrade Organization (WTO) has sped its transition tofree-market capitalism. According to China Pacific Although regional and niche insurers will remain viableInsurance Company Group CIO Richard Cheng, the in the 21st century, economies of scale will concen-“Chinese government benefit program will not be trate premiums, assets and global market share amongsufficient to this middle class,” leaving the door open a smaller group of very large insurers. Technology willfor domestic and foreign insurers. ensure that they are able to develop and distribute products on a mass scale. Partnerships and strategic agreements, rather than mergers and acquisitions, will(De)regulation. The convergence of financial services enable the “one-stop shop” model.set in motion by industry deregulation, such as theGramm-Leach-Bliley Act and the deregulation ofthe Chinese market, has resulted in consolidation, Independent channels will increasingly be the sourcenew markets, new competitors and the creation of for life products. In the next 10 years, captive agentsinterrelated, cross-industry value chains. To estab- will have largely disappeared in the West, while, inlish operations in high-growth geographies, insurers developing economies, they will gradually be over- taken by banks, in alliance with both domestic and2 BEARINGPOINT
  4. 4. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMforeign carriers. Novel partnerships between insurers Furthermore, the notion of “distribution” itself willmay also emerge, particularly in a rapidly denation- change, as it becomes less about transferring and sell-alizing China. ing products and more about sharing information, whether in a B2B or B2B2C context.The Internet and wireless communications will likelyemerge as serious sales channels; they are beginning tomake inroads in non-life sales today and, in 10 years, THE EVOLUTION OF IT:will begin to take market share from independent FROM 20TH TO 21ST CENTURIESchannels. Insurers in Japan and China, where the useof wireless transactions is ahead of that in the West, The insurance industry is poised to benefit from ahave begun to offer travel insurance via wireless number of new technologies, as well as the novelaccounts, allowing for “impulse” purchases on the fly. application of existing techniques, to realize greaterFIGURE 1. THE INDUSTRY VISION 20TH CENTURY 21ST CENTURY MARKETS • National concentration • Global concentration • Growth in developed markets • Growth in developing markets • Insurance/some FS integration • Cross FS global alliances COMPETITION • Polarized: life and non-life • Dynamic: life vs. non-life • Insurer vs. insurer • Insurer vs. ??? • Mutual model • Total demutualization DISTRIBUTION • Channel segregation • Channel integration • Direct/independent on unique platforms • Direct/independent on common platforms • Distributing products • Distributing information PRODUCTS • Internal strategic/internal development • Internal strategic/external development • Complex • Simple/standardized • Insurer-driven • Customer-driven RISK MANAGEMENT/ • Affinity groups/some tiered underwriting • Fully tiered underwriting/automated UNDERWRITING • Reactive modeling • Predictive modeling • Actuarial risk focus • Operational risk focus TECHNOLOGY • Group: decentralized • Group: centralized STRATEGY • Business: isolated/some integration • Business line federation/mainly integrated • Geography-defined • Geography-agnostic • IT as “client” • IT as “partner”Source: Datamonitor WHITE PAPER 3
  5. 5. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMcustomer-centricity, improve IT flexibility and remain would negotiate, or in some cases battle, over strategycompetitive in a rapidly changing industry. Figure 2 and budget dollars came to an end. Among the lead-highlights how these key technologies can change in ing insurers today, IT is becoming so fully integratedthe next five to 10 years. into the business decision-making process as to appear almost invisible.IT/BUSINESS ALIGNMENT Our conversations with insurers repeatedly illustrateDuring the last 20 years or so, an understanding of the importance of IT and business alignment inthe importance of better integration of business and establishing effective long-term technology strategy.IT strategies emerged. In some cases, it was the gal- General insurer ING Canada began the process ofvanizing onset of the year 2000; for others, it was implementing a central IT function in 1996 thatthe buy-in of technological promise amid the dotcom paralleled its strategy of common platforms acrosshype. Nevertheless, for many of the largest financial insurance lines. ING Canada currently sees itself asservices companies, the days when business and IT highly centralized in IT infrastructure, applicationsFIGURE 2. THE STRATEGIC VISION 20TH CENTURY VISIONARIES 21ST CENTURY CUSTOMER • Imperative: channel provision • Imperative: analytics MANAGEMENT • Price-led • Price- and service-led • Acquisition • Retention PROCESS • Largely manual • Largely automated • Workflow/digital documents • Business process management engines/straight- through processing ENTERPRISE • Point-to-point networking • Service-oriented architecture ARCHITECTURE • Back-office functionality resides • Reference-/event-driven (portfolio management, in legacy underwriting) • Centralized computing • Distributed/grid computing INFORMATION • Siloed • Integrated • Product-defined • Customer-defined • Structured vs. unstructured • Automated and dynamic taxonomy • External fraud detection/claims • Internal/auto fraud/claims, identity theft CHANNELS • Manual interaction • Portal front end (B2B2C) • Disconnected operations • Shared back office • Limited partner interaction • Partner network (claims, underwriting) COMMUNICATIONS • PBX • Voice over Internet Protocol • Phone/fax • Wireless LAN, field agents, claims settlement • Manual transactions • Electronic transactions SOURCING • Internal dominant — tactical • Best sourcing — strategic • Long-term outsourcing contracts • Centralized procurement • StandardizedSource: Datamonitor4 BEARINGPOINT
  6. 6. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMand strategy, despite leaving some decision-making from here? Or, as some in the industry might lament,authority to regional offices. This centralization has can we get there from here? Many of the technologiesallowed it to consolidate legacy systems on a common cited by our respondents are not new. The conceptplatform while driving long-term project develop- of service-oriented architecture (SOA), for example,ment, including four- to six-year plans for enterprise has existed for years, but only with the recent devel-data integration and electronic transactions. opment of Web services has it become a practical proposition. Claim notification enabled by radio fre-A large European life insurer indicated that its inte- quency identification (RFID) and real-time, driver-gration efforts led to an enterprisewide, “two-track directed premium adjustments are tantalizing ideasprocess”—continual evaluation of all infrastructure to technologists, but with the industry still address-(to ensure lower costs) and processes (to ensure flex- ing core systems, it is unlikely these solutions willibility). The insurer believes that by establishing reach the mainstream for at least another decade.ongoing enterprisewide IT evaluation, “we will beable to build unique and new capabilities five, 10, Clearly, the insurance industry remains in a transition15 years into the future.” period, with most major carriers taking the necessary steps to prepare, perhaps, for the “science fiction”STANDARDIZATION, WORKFLOW AND possibilities sometime in the future. By implement-NETWORKING TECHNOLOGIES ing technology change in a steady and measurable fashion, with business objectives driving strategy,While the centralization of business and IT strategy insurers will be able to achieve the balance betweenhas fostered more effective strategic thinking, the maintaining profitability and solvency while estab-development of the Internet, Web services and middle- lishing the flexibility necessary to keep pace withware are enabling the execution. Standards in IT industry change. The leaders in this area are makinginfrastructure, networking, Web services, and, most progress toward the 21st century vision by estab-important, the evolution of open and componen- lishing new techniques to address the most pressingtized architectures are enabling the separation of business concerns.IT management and IT strategy—a huge step inthe evolution of a 21st century vision. Business and CUSTOMER MANAGEMENTIT executives can now realistically envision the daywhen it will be possible to remove the management, The primacy of the customer has arrived in themaintenance and even development of technol- insurance industry. In the next 10 years, insurers willogy applications from an organization, leaving the likely have established a uniform channel strategy ininsurer to concentrate on customer service, product which consumers can choose between an agent, bank,innovation, sales and marketing, branding, and cor- Internet or wireless/PDA as their means of buyingporate strategy. insurance. The attention will begin to shift to more advanced customer analytics that record, analyze and manage all aspects of the customer/insurer relation-WHO IS LEADING THE WAY? ship, thus improving cross-sell opportunities andA VIEW ON THE GROUND fraud detection.With the vision of the next five to 10 years taking Before the analytics can be used effectively, however,form, the question remains, how do we get there insurers must make sure channels are well estab- WHITE PAPER 5
  7. 7. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMlished. The industry’s experience with customer CIO Scott McKay, there is “an entirely new opera-relationship management (CRM) several years ago ting environment being created for insurers, withhas left IT departments wary. In what has become a many not having the capabilities to service this newlesson on the dangers of embracing technological landscape. The companies that do will be in an advan-hype without an understanding of its real business tageous competitive position.”implications, the failure of CRM projects to deliverthe expected return on investment has left some ING’s U.S. life insurance division is actively plan-insurers dubious of expectations laid out by vendors. ning its Web strategy around the changing needs ofAccording to a leading Italian non-life insurer, the these customers—“certainly, servicing targets in thefailure was likely due in large part to confusion over upper-middle/upper class who are saving for retire-what CRM could deliver. “I am afraid of speaking ment is a priority,” says Catherine Smith, COO. Theabout CRM. We are assuming CRM tools cannot key for ING is to enable the direct channel not foraddress all the points in a customer life cycle. You need sales, but for more streamlined access to accountto have a CRM architecture across different informa- information on an increasingly diverse and complextion systems, so it’s more than just tools. We have to product portfolio. Furthermore, ING Direct’s successthink about something that is more along the lines in online retail banking will be a model for greaterof business process automation.” customer “intimacy” in insurance, including initia- tives like “click-to-call” contact centers.The use of CRM does, in fact, hold significant prom-ise for establishing a deeper customer relationship, McKay is also keen on these automation technologies,but it is clear that insurers must establish the frame- citing voice recognition as one that is enabling sig-work before they can use the tools. For the Italian nificant efficiency and security in Genworth’s long-non-life insurer, establishing what they call a “par- term care applications. “This is an industry knownallel channel strategy” is the key to customer service for telling people, ‘Let me send you the form.’ Within the industry over the next five years. The only voice recognition software, I record that voice on theexpectation insurers should have, says the insurer, “is phone and I attach it to the file, so that conversationthat the channel between the insurer and the client is an even better authentication than a signature. Itwill not always be the same.” Therefore, enabling as proves who they are and that you are performing themuch interaction as possible between the various task they asked you to. I think this technology haschannels is of utmost importance. It is essentially been significantly underutilized in the industry.”placing the customer, rather than the channel, atthe center of an insurer’s customer service strategy. PROCESSThis will be achieved by establishing a number ofother priorities for technology initiatives, such as Currently, imaging and workflow technologies enablearchitecture, automation and data integration, that the digitization of documents and, by extension, addenable “a greater global view of the customer.” a degree of automation to business processes. Insurers are introducing automation into routine tasks suchThe need for a global view will be essential in the 21st as simple auto claims, insurance policy changes, orcentury. Insurers will increasingly need to have a full ratings/pricing adjustments in underwriting. The nextunderstanding of their customers’ buying patterns phase of automation, however, will be to enable trueand evolving needs and provide more consultation on straight-through processing in most insurance proc-a growing product portfolio. According to Genworth esses, at both the processing and analytical levels.6 BEARINGPOINT
  8. 8. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMThe advent of business process management technol- environment. In the 21st century, legacy issues willogy is already having an impact on so many areas of not demand nearly the attention or budget fromboth manual and electronic workflow. The multi- business managers that they do today.contact-point and labor-intensive claims-processingfunction is the primary target of automation in non- Most of the leading insurers are already well along inlife operations. The Italian non-life insurer is making rationalization of their legacy operations, with thea commitment to automation in this area, and most popular approach being the migration of func-believes that the healthcare claims process will be tionality to a middle tier. Aviva remains in an “atticthe next big opportunity for automation. cleaning phase,” reducing the duplication and cost of legacy where systems cannot be replaced. ING USFSPerhaps because of the intensive process focus in the and ING Canada have largely tackled systems ration-insurance industry, automation was cited as a break- alization, the former dealing with the culmination ofthrough technology idea by several respondents. several years of mergers and acquisitions activity, andAccording to several of our participants, the under- the latter doing so as part of the overall move to com-writing process stands to reap early benefits from auto- mon platforms.mation, given the reliance on actuarial models andthe classification of numerous types of data and the Although these efforts largely serve to reduce cost andmanual processes still necessary for generating pricing/ duplication from core systems operations, they stream-rating tables. However, participants cautioned that line numerous processes and pave the way for muchprocess must not be confused with enablement. greater functionality between old systems and new applications. The ability to increase functionalityIn order for automation to finally replace manual proc- between disparate systems within a common platformesses, the industry will have to move beyond simple is the essence of enterprise architecture and serves toenabling technologies, such as imaging, that perform execute on the centralized decision-making process.some necessary functions but are not true automation. Because the establishment of enterprise architecture“When I use imaging,” says Genworth’s McKay, “I am supports the very notion of IT/business strategyin essence locked in to using electronic paper, causing alignment, it may be the most important long-termme to still have people sitting there analyzing every technology investment an organization can make.piece of data coming in front of me. Contrast thatwith getting 100 percent of my data into a system. Although there are a number of technologies cur-Now I can turn loose and use all kinds of digital deci- rently supporting the application of enterprise archi-sion engines, process simulation tools and unlock layer tecture, and several likely scenarios, executives seeupon layer of additional productivity and service lev- enterprise architecture as practically synonymous withels by being able to automate things.” SOA. The way SOA is spoken of these days gives it the allure of a technology holy grail. One of ourENTERPRISE ARCHITECTURE respondents believes this will be the most signifi- cant technology development in the next 10 years.If the aim of the 21st century insurer is to be more Despite the seemingly sudden interest in the indus-comprehensive in the collection of information, more try, the idea of SOA is not new, but the technologiescreative in its use and more nimble in its application, that enable it, such as Web services and open systemsit will need to establish a far more predictable IT development environments such as J2EE and .Net, have recently made SOA a more realistic proposition. WHITE PAPER 7
  9. 9. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMIn the context of an SOA, these technologies enable an outsourced framework. Risk is integrated into theunprecedented amount of flexibility within an organi- day-to-day operations and fed back into the systemzation’s operating environment, enabling heretofore to develop more accurate modeling and pricing strat-unprecedented speed, flexibility and efficiency. egies. In fact, a combination of greater government oversight and distributed/grid computing may yetThe largest insurers have already embraced the idea shift the risk burden from underwriting to opera-of Web services. The Italian non-life insurer sees SOA tions, including network security and consumer/as the true enabler of automation in processes and agent privacy.data management because the entire enterprise willbe an open book. “Only with open architectures The establishment of enterprise architecture meanswill the business be made flexible enough to enable that disparate business needs will be far easier to inte-more automation.” Aviva is beginning to implement grate. However, the development of architecture isSOA across individual business units where appli- but one piece of the technology puzzle for insurers.cations, or services, are either available or easily Globalization of all economic activity will lead to adeveloped. Currently, these organizations are focus- continued rise in the severity and volatility of high-ing on transition, setting up common guidelines and impact risk exposures, while compliance requirementsintegration with existing lines. At the same time, will require regular and reliable reporting capabilities.they are eliminating point-to-point connections in Furthermore, the underwriting process will be increas-favor of process management engines, considered an ingly fine-tuned to incorporate more precise risk factorsimportant—though more tactical—component of among insureds. All these pieces of data will need toenterprise architecture. A large European non-life be stored, classified and callable for use in numerousinsurer believes “the step before full SOA is to use risk profiling operations.the message broker and business integrator—a typeof technology that allows this type of applications Data management is essentially the collection andcommunications.” proper use of knowledge. McKay believes that once the governance and process focus are in place,A U.S. life insurer said, “We think IT architecture knowledge is the most important overarching factormust be based on SOA and Web services to make the in success. “You have the strategic discipline andbusiness more flexible and enable more automation.” incorporate a lot of knowledge of what you’re doing, whether it’s technology knowledge or actu-The insurer of the 21st century will almost certainly arial knowledge or risk management knowledge. Allemploy some form of enterprise architecture, likely of those areas come together to make these thingswith elements of reference architecture, that will allow successful.”more-dynamic, even real-time, decision making thatwill be driven by events, such as market fluctuations. The implementation and use of both structured (defined and classified data, such as corporate policyINFORMATION or financial results) and semistructured data (e-mails and telephone conversations) will emerge as impera-All tasks coming into the organization are directed, tive to realize the benefits of the feedback loop. Themonitored and managed in real time, and data is key at this stage is moving data to a warehouse,stored and reused for underwriting, modeling and essentially a component, or service, within an archi-compliance, either within the organization or in an tecture, from which it can be organized and extracted8 BEARINGPOINT
  10. 10. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMto meet business objectives, such as the pricing of a as the spokes, able to initiate or respond to requestsnew policy or product according to a risk profile in independently. Third parties on both the sales (agentsa given growth demographic or the risk associated and financial advisers) and service (fulfillment andwith a certain asset class in a portfolio. These appli- settlement operations) sides will also have access, ascations will be increasingly useful in the modeling claims increasingly become automated.of catastrophe or terrorism risk. In this scenario, modelsmay be cross-referenced against corporate databases Many of the leading insurers we spoke with have hadto measure risk precisely across an entire group of agent portals up and running for several years aspolicyholders. part of their acquisition integration or captive agent replacement strategies. A large U.S. property andThe visionaries are implementing technologies that casualty company recently completed this project forenable the processing of information. Distributed or its agents in all 50 states and is now addressing angrid computing is already being used by a number updated Web access for customer information thatof large non-life insurers for risk modeling or catas- will allow them to obtain information on everythingtrophe forecasting, allowing for much more precise from new products, to policy changes, to claims status.risk calculations. McKay says that Genworth, usinggrid computing for risk analytics in comparing liabil- The biggest challenge as we approach the end of theities in the asset portfolio, “has realized faster cycle decade, however, will be in China, where both life andtimes and pricing runs, which has led to a measurable non-life insurance are still sold through company-competitive advantage.” employed agents. Deregulation is providing an oppor- tunity for Japanese, European and U.S. carriers toCHANNELS enter the Chinese insurance market in novel ways. For example, ING currently provides pension insuranceCaptive agents in the West will begin to disappear via an agreement with China Steel, filling a void leftin developing markets in the next five to 10 years, while by denationalization of Chinese industry. However,the growth of direct-to-customer sales via the Inter- the most popular method of entry into developingnet and wireless will continue to fragment insurance markets is via other financial services channels, suchdistribution. Increasing attention to customer serv- as banks. China’s largest insurers will find it difficultice will also require significant investment in non- to compete with foreign insurers in an increasinglyacquisitional information, as policyholders become independent agent framework, according to Chinamore directly involved with account management Pacific Insurance Company’s Cheng. “Insurers willand claims. have to improve their product design, internal con- trol, and management and technology to competeAccording to the survey respondents, the greatest dis- for, let alone maintain, market share.”tribution challenge for insurers over the next five to10 years will be to provide competitively differenti- COMMUNICATIONSated access to information. A large European insurerbelieves that because of the B2B2C nature of insurance Insurers remain concerned mainly with investments insales, it will be imperative for insurers to open their transforming core systems to improve operationalback office to agents and policyholders alike. An insur- efficiency, considering the enthusiasm in the areasance company will essentially act as an information of architecture and process automation. However,network hub, with agents, banks and policyholders advances in communications technology are giving WHITE PAPER 9
  11. 11. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMthe insurers the ability to realize a host of new appli- In order to meet rapidly changing demand curves andcations in everything from internal communications run a pan-European business more efficiently, Zurichto Voice over Internet Protocol (VoIP) to wireless. decided to move the application development off-According to a large European non-life carrier that has shore where it could more easily scale production toimplemented a VoIP initiative to strengthen the link meet demand, thus increasing staff productivity whilewith its agents, “VoIP will happen. Having voice and realizing a significant cost savings. According to Chiefdata on the same network enables more flexible com- Information Technology Officer Michael Paravicini,munication between employees and cost reduction.” this agreement meant “getting access to the right skills at the right price at the right time” in order toThe Asian market is at the forefront of wireless speed time-to-market.business communications, both for information shar-ing and for transactions. According to China Pacific This desire for efficiency over cost savings suggestsInsurance Company’s Cheng, only enterprise archi- a shift in thinking. Another large European insurertecture is a more important technology idea than is currently considering an application testing arrange-mobile in the emerging Chinese insurance market. ment that will integrate the development function“Mobile is part of the Chinese culture, plus the infra- across geographies. However, there remains somestructure is here. Everyone has cell phones and PDAs, reluctance to outsourcing due to the complexity inwhich will be the key information contact points with sharing intellectual property and the difficulty inthe consumer. They can pay premiums or get policy measuring service levels. Furthermore, many insurersinformation or click to a call center for more help.” feel that sending too many jobs offshore could beThe great advantage of mobile, according to Cheng, detrimental to customer relationships or organiza-is that the technology can be used anywhere, where- tional morale. A large U.S. life insurer said that, foras face-to-face contact and even computers cannot. this reason, it seeks to keep many jobs, such as produ- cers and dedicated service representatives, onshore.SOURCING However, it continues to look for opportunities to send commoditized functions outside the organiza-Insurers have long accepted outsourcing as a means tion. This reflects the mixed feelings on outsourcingof leveraging economies of scale to lower costs. Claims and echoes the pros/cons argument surrounding out-processing has been outsourced to third parties for sourcing in the media—what goes and what stays?years, while the outsourcing of IT, including networkand call center management, is now commonplace Until recently, application development was consi-in global insurance. Recently, however, insurers have dered a strategic insurance business function, whereasbegun to view outsourcing as more than a foundational call center outsourcing was a service-agnostic, labor-cost-cutting measure. The separation of IT manage- arbitrage play. The contrary thinking among ourment from IT strategy is allowing carriers much visionaries indicates that, while faith in outsourcinggreater flexibility in moving other operations and agreements will increase, outsourcing itself will remainprocessing functions outside of the organization. an option, determined by strategic factors unique to each organization.Zurich Financial Services is among the pioneers in thisarea, having entered into a unique agreement thatseparates functions within application development.10 BEARINGPOINT
  12. 12. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRM Be realistic about what capabilities and resourcesCONCLUSION need to be in place. Management needs to understand what types of competencies, skills and resources areWith the global financial services industry at the necessary to execute toward the vision. A company’sleading edge of a once-in-a-generation growth oppor- planning processes must encompass the IT initia-tunity, leading insurers are showing how technology tives to make sure the organization is equipped tomay become a competitive sweet spot for true trans- carry them out.formational change. Re-engineering of core systemswill gradually give way to new priorities and mark Develop a culture of follow-through on a long-termthe end of a transitional period from the 20th to the basis. How many times have companies launched21st century. ambitious IT initiatives, only to abandon them “when the going gets rough” or when the next major reor-The emergence of uniform IT/business strategy ganization weakens or eliminates executive support.promises to pay dividends in long-term, enterprise- It is critical that senior management understands thewide technology strategy—one that can address the full price of failing to see projects to their conclusion.demands of agents and policyholders, more easilyadjust to risk and help firms adapt to and scale for Overcome organizational inertia. In many com-a rapidly changing global business environment. panies, people act like antibodies when new andHowever, to reap these rewards, insurance companies unfamiliar technologies are introduced; they comemust address several key issues: from all directions and try to eradicate it. If trans- formational projects are to survive, senior executivesEstablish a clear, achievable vision that includes must provide strong, unwavering support. Commu-measurable steps. Increasingly, corporate boards nication must be clear and consistent from projectand senior executives are requiring detailed business inception to completion. Education and training mustcases for new IT initiatives, including the ability to be thorough.show that projects will generate a healthy return oninvestment within very tight time frames. The trans- Learn to cut losses when necessary. Many insurersformation plan cannot be a “big bang” approach. have trouble shutting projects down midstream if theyCIOs must be able to articulate clearly—in tangi- realize that the initiative is out of alignment withble business terms—the scope of their vision, the the broader vision. CIOs and senior executives neediterative steps that will be taken to get there and the to reevaluate their portfolio of projects continuallyvalue that will be created along the way. As Genworth’s to make sure they are on track and that both near-McKay says, “I think the industry whines way too term and long-term objectives are being met.much about legacy systems. The issue is not one oflegacy systems versus new technology. It’s aboutIT organizations that strategically position their Long-term, comprehensive IT strategies that includeplatforms to evolve forward in stage execution, not enterprise architecture, process automation and cus-thinking somebody is going to suddenly bring you tomer analytics will be essential to insurance com-a magic bullet and replace your legacy systems.” panies as they bridge the gap between the 20th and 21st centuries. Still, to realize the benefits of these projects, industry leaders must first recognize their limitations and properly understand their potential impact on meeting business objectives. WHITE PAPER 11
  13. 13. HOW TO CREATE A PLATFORM FOR THE 21ST CENTURY INSURANCE FIRMEncouragingly, technologies such as open source com- ABOUT THE AUTHORSputing and SOA are reaching the stage of maturityat which they can contribute to project success.Leveraging these technologies and staying the course Marcel Nickler leads BearingPoint’s global insuranceonce momentum is gained, leading insurance com- segment and is based in Zurich, Switzerland. He haspanies can, perhaps, be first in line to enjoy the sweet been with BearingPoint since 2000, and his insur-taste of success as the new global opportunities unfold. ance industry track record includes more than 20 years of experience in corporate strategy, IT/business alignment, process re-engineering and technologyGLOBAL MANAGEMENT AND management. Marcel earned a university degree inTECHNOLOGY CONSULTING FOR actuarial mathematics. For more information, con-TODAY’S BUSINESS ENVIRONMENT tact Marcel at +41 43 299 7310.BearingPoint is a leading global management and Edward Blomquist is a senior analyst with Data-technology consulting company that serves the monitor’s Technology practice, where he specializesGlobal 2000 and many of the world’s largest public in financial services technology. His work has beenservices organizations. Our experienced professionals cited in numerous industry and trade publications,help organizations around the world set direction including A.M. Best; National Underwriters, Insuranceto reach their goals and create enterprise value. & Technology Magazine; and Banking Systems andBy aligning their business processes and informa- Technology Magazine.tion systems, we help our clients gain competitiveleadership advantage — delivering results in anaccelerated time frame. To learn more, contact us at1.866.BRNGPNT (+1.703.747.6748 from outsidethe United States and Canada) or visit our Web siteat www.bearingpoint.com.12 BEARINGPOINT
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