Challenging Times for the 'Networked Insurer'

For decades, the insurance industry has functioned on tried and trusted business models.

The traditional insurance value chain had the primary insurance company at its centre. Interactions were with other equally long established distribution organizations, as well as capital markets, and regulatory organizations. The customer was to a great extent on the periphery of this model.

However, this traditional model is being disrupted. New players are entering the field, appealing to increasingly demanding customers and taking significant market share. Differentiation – that is, focusing on a specific capability or skill – is more than a necessity. It is a matter of survival.

Forces changing the value chain
Consumers, armed with increased knowledge and awareness from the internet, are demanding choice, quality and value. Insurance companies who put their heads in proverbial sand and ignore such trends are putting customer satisfaction, loyalty and retention at risk – and by the same token, playing into the hands of their competitors.

Whether in China or the Czech Republic, insurers of all sizes and lines of business are finding it harder and harder to build long-term, profitable customer engagements. By way of contrast, many of the new players are exploiting their close and active customer relationships to develop new insurance based propositions for their customer base; for example, the Asda supermarket chain in the UK.

“The IT landscape of many insurance companies is characterized by information silos and process boundaries, and IT is now usually viewed as a gate to change, rather than a enabler or promoter of innovation.

Established insurers – many of them global insurance players – are reacting and now do things differently, outside of the traditional value chain. They are trying to grow even further, providing a full range of propositions, often on a global basis, and realising economies of scale.

If all of these new players are creating new business models, what does it mean for the insurance value chain? Simply, it means that to be successful, these players have to collaborate more strongly than in the past. For example, products that are sourced from primary insurers (white labels) require close collaboration with the distribution channels in retailers, affinity groups, and so on. This collaboration, in conjunction with players specialising and focusing on parts of the value chain, requires extensive networking.

Unleashing the network advantage
Global market change and new business requirements underscore the need for rapid adaptation in the areas of business process and enterprise collaboration. However, the IT landscape of many insurance companies is characterized by information silos and process boundaries, and IT is now usually viewed as a gate to change, rather than a enabler or promoter of innovation.

A recent report by TowerGroup Research cites three priorities that will be at the forefront of the insurance industry in the year ahead: enterprise business and IT alignment; service-oriented architecture (SOA) and customer intimacy.

Currently, the report states, few insurers are emphasizing business architecture, even though it is evident that business objectives should be tightly wedded to IT assets and investments. It’s a simple formula – or at least it should be. When companies align business objectives with technology across the enterprise, they reap the biggest benefits and provide their customers with faster response to changing business needs, efficient leverage of existing IT assets, improved productivity and a reduced cost profile.

“Insurance companies who put their heads in proverbial sand and ignore such trends are putting customer satisfaction, loyalty and retention at risk – and playing into the hands of their competitors.

Historically, insurers have not achieved the full benefit of process improvements in critical areas, such as claims, premium billing, financial accounting, vendor management and underwriting. They have lacked critical technologies for improving infrastructure and enabling a SOA architecture with business applications that meet industry requirements and standards. This also applies to a key insurance asset – data. Much data has been lost, not captured properly or gone unused as business intelligence that insurers could leverage to maximize their business advantage has been diluted.

Turning ideas into reality
So, with new business models driving specialization and specialization driving collaboration and collaboration driving networking, the key to an insurer's survival is a quite different IT architecture to help support adaptive business processes.

What is needed in today's networked world is an IT architecture that is more modular, one that requires more standardization to provide one-stop, customer-oriented information across the full value chain. In addition, such a platform should provide efficient, end-to-end processing, as well as strong workflow and configurable business-rules engines for such functions as automatic assignment and event triggers. There should also be cutting-edge tools for administration, networking and collaboration with both internal and external resources and for managing various stakeholders in the insurance value chain.

With Enterprise SOA, networked insurers will be able to facilitate collaboration, provide full visibility into enterprise data, and improve speed and flexibility across industry processes. Such a fully integrated solution creates a single view of customers across all delivery channels, eliminating the silos of customer data in many existing systems, and helping insurers maximize opportunities for cross-selling. In addition, Web-based, enterprise-portal capabilities can significantly streamline distribution and provide mobile support for agents, brokers, and other service providers.

Norman Black is UK Industry Principal for Insurance at SAP