• Posted by: Technology Staff Editor
• On: 03/13/2008 09:56:51
• In: Information Technology

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While the world holds its breath to see if the global economies are experiencing a light cold or full-blown pneumonia, insurance CIOs in markets outside the United States have plenty of technology initiatives to pursue. Of course, global CIOs face the unique challenges of their local markets and economies.

European insurance IT executives, for example, will focus on streamlining operations and improving distribution. Meanwhile, their Asian counterparts will look at scaling for growth and product innovation, and Latin American insurance CIOs will continue along the lines of industrializing their businesses. While international insurance CIOs will keep a watchful eye on the global stage, they will continue to invest in strategic technology initiatives in 2008.

Europe: Getting the House in Order
There is much talk of a global recession, triggered in part by the subprime crisis in the United States, and the full impact on European insurers remains unclear. But the compelling reasons to tackle legacy systems and improve the overall interaction experience of customers and brokers remain in place. Senior management in insurance companies have seen enough examples of the value delivered by technology innovation to keep the spending spigot turned on. However, they also will keep more of an eye turned to the general economy as 2008 unfolds. Until the dust settles on this storm, Celent expects European insurers to continue along the investment lines of their 2008 budgets.

In Celent's annual European CIO survey, insurers noted an overwhelming focus on two key areas. The first priority is on internal operations. Insurers are keen to streamline business processes, remove duplication of effort and automate where appropriate. 2008 will be about getting the house in order. IT investment to support this objective will be around core systems, business process management tools and improved infrastructure. Legacy systems remain a stumbling block for the streamlined organization. Poorly documented code, inflexible data models and high maintenance costs all make it difficult for IT to support the business.

Improving ease of doing business and speeding time to market also remain near the top of European insurers' priority lists. With increased competition for new business, insurers are investing around distribution capabilities and improving the integration with the back office. Investment is planned around new-business solutions, such as broker portals; upgrading core systems; and in Web services and SOA to improve integration efforts.

The landscape of distribution continues to change across Europe. New players enter the market in the form of aggregators, affinity groups and retailers. Brokers and agents still play a strong role in many countries in Europe. In the U.K., there is a growing trend for the direct channel to the consumer, especially in personal lines, which are becoming highly commoditized. The rise in the use of aggregators has been dramatic. All these channels require a cohesive strategy to ensure costs are contained and the appropriate risk is taken on the books.

One of the most notable changes in this year's European survey is the adoption of Web services and SOA. Web services and SOA are widely deployed, especially in front-office solutions. These technologies are past the research and pilot phase and have entered into production, where they are delivering value. Eighty-three percent of large European insurers have deployed these technologies in mission-critical production systems. Midsize insurers are not far behind in adoption, with 50 percent using Web services in mission-critical production systems.

Asia: Scaling for Growth
Two of the dominant markets in this region, India and China, face serious challenges in keeping up with the growing economies. Liberalization and the opening up of these economies have established an increasing interest for insurance among consumers. Such potential is good news for insurers; but these markets are set to experience scale requirements unseen elsewhere in the world.

In India, with a population of 1.2 billion and an expected middle class of almost half that, insurers will have to cope with volumes of data and transactions in core systems that have never been seen before. While growth is not as fast in China, insurers will face similar challenges there soon.

Small and midsize Asian insurance companies continue to focus on investment in hardware and communication facilities (such as wide area networks, Internet access, basic telephone facilities, etc.). Upgrading core solutions will be the next step. The question remains as to where to source these core systems. Solutions from Europe and America are deep in functionality but are unproven in scale for these markets. Build-versus-buy will continue to be a valid debate in the coming years.

Both India and China have incumbent monolithic insurers that are being challenged by small, innovative startups. Most of the new insurers have investment partners from established markets such as Europe or the U.S. that bring with them significant experience, product innovation, capital and IT resources for this new challenge. These startups will play an important role in defining how these previously closed markets grow in the coming years.

Elsewhere in the region, Japan's declining population translates to declining premiums. However, Japan's challenge for 2008 will be how to take advantage of the recent legislation allowing banks to sell the full range of insurance products. This model is well advanced in other regions, particularly in Europe.

Malaysia was one of the first countries in the world to allow Islamic insurance (Takaful) to be sold, and this innovation is being copied elsewhere in Asia and the Gulf Cooperation Council (GCC; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). Micro insurance is another product innovation of the emerging countries. CIOs in these regions will continue to have to support products unique to their environment. The impact on systems is similar to those in developed countries -- the technology needs to be highly flexible to support evolving business models. High levels of automation often are required to offset the insurance skills shortages in the region.

Latin America: Industrial Revolution
Insurance growth follows liberalization of economies, and this is true for Latin America. In this region, the focus more often is on industrialization of the business.

There are many areas of efficiency gains to be had. Multiple core systems supporting multiple lines of business increase error rates, negate any chance of straight-through processing, lengthen product-to-market times, and ensure that a single customer view is impossible. All these aspects of inefficiency increase cost per policy and increase the number of dissatisfied customers, ultimately eroding the bottom line. Technology has an important role to play in automation and the reduction of costs.