New Decade, New Opportunities Insuring a brighter future
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This exclusive report reveals 10 predictions designed to guide executives to gain a strategic advantage in the evolving insurance landscape. By Melissa Martin and Li-May Chew Woody Allen once famously said: “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?” But seriously – where would we be without insurance? Today’s global economic environment is fraught with unpredictability and profound challenges. A combination of issues – including potential healthcare disasters from pandemics like the swine flu, catastrophic losses from natural and human-made calamities (think of the horrific bushfires in Victoria and the devastating floods in Queensland), aging populations, increasingly stringent regulatory requirements, and the need for reserve strengthening following the global economic crisis – is driving the need for reorganisation of business priorities for insurers.
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Australian Insurance ICT Market, 2010 (A$M)
To understand what exactly is setting these winners apart, IDC offers the following predictions to help insurers emerge stronger and more resilient. IDC trusts that these predictions will resonate with insurance executives – provide an independent verification that they are traveling down the right path – and highlight potential hurdles that need to be managed in 2010 and beyond.
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Australian Insurance ICT Market by segment, 2010 (A$M)
Source: IDC, 2010
Australia’s Insurance ICT Market
The Insurance ICT market accounts for 15 per cent of the total Banking, Financial Services and Insurance (BFSI) market and contributes 3.6 per cent of the total enterprise spending on ICT in Australia. IDC forecasts that insurance companies will spend A$1,621 million on ICT in 2010, growing to A$1,873 million by 2013 (this equates to a 2010-2013 compound annual growth rate of 4.9 per cent). Please Note: IDC defines the insurance sector as being comprised of all businesses offering non-compulsory insurance of any kind (life, fire, casualty, accident and health, medical service, surety and title insurance, pension, health and welfare funds, and so forth). This includes carriers as well as insurance agents and brokers. It also comprises insurance carriers, insurance agents, brokers and services. The majority of insurance spending on ICT in 2010 will be on IT Services – 38 per cent or A$621 million. Spending on software and hardware will be an even 23 per cent (A$376 million and A$369 million respectively), followed by telecommunications at 16 per cent or $255 million.
Top 10 Predictions for the Australian Insurance Sector
Despite the recent economic chaos, some insurers are outperforming others. They are looking beyond keeping the lights on and instead re-inventing themselves by developing long-term strategic advantages and deploying new technologies to provide the competitive edge.
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1. Alternative distribution channels will be further enhanced Business innovation via alternative distribution channels (web portal, self-service kiosks, mobile devices, and other direct marketing models) to reduce reliance on the traditional agency network should bring new efficiencies to the distribution framework and cater to divergent buying preferences of policyholders ranks. Insurers need to leverage off these various channel capabilities, but be able to present customers with a cohesive channel message and branding regardless of the mode of interaction selected. 2. Managing the agency distribution network will become a critical competency in 2010 Insurers must augment products and services offered to independent agents and brokers to enhance their productivity and allegiance. To do so, insurers need to equip distributors with easy-to-use tools and technologies, provide them with self-service marketing applications and access to product specialists, product information, and incentivise with clear performance metrics. 3. Data integration and management will shift to high gear Insurers need to synchronise valuable but disparate customer information files via data integration and warehousing to create a “single version of truth” on customers. Here, they are making strategic investments around mining, standardising, and transforming of data into valuable information. Such improvement to data quality would provide greater confidence in business process controls, improve planning and management decisions, and help mitigate enterprise risk. Information is power!
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4. More customer-centric undertakings will be launched After tackling challenges on the data front, insurers follow up with the application of CRM technologies to organise and analyse customer information and manage client relationships. The year ahead will see greater utilisation of analytics to more deeply segment customers and provide insight into their minds, enhance the customer experience with more personalised servicing and sophisticated marketing programs, and allow them to act strategically to grow selected relationships or develop bettersuited products. 5. Insurers will take on process improvement initiatives Change transformation initiatives continue to dominate the agenda. We see insurers innovating in this arena and investing in business process management solutions to automate and improve processes such as systems workflow and claims management through the adoption of business process reengineering, policy rules centralisation, and exception-based processing.
investing in rules-based analysis and predictive modeling, creating shared databases for data exchange on known fraudsters, and tackling agent fraud through perimeter defense technology (e.g. firewalls). 8. Innovation will bloom with â€œproducts of the dayâ€? Alternative lines of businesses such as health insurance and micro-insurance are poised to become new hotspots for carriers as they attempt to capture alternative customer segments and diversify revenue streams. Here, technology plays a crucial role for insurers to practically sustain these new offerings. For instance, micro-insurance offers wafer thin margins, and processes have to be made highly automated and cost efficient with the use of IT in order for the low income to become a profitable market segment for their operations.
6. Core agility enhancements will continue Core business systems are the lifeblood applications of every carrier, with insurers spending perhaps 75-80 per cent of IT resources in maintaining, patching, and fixing their legacy systems. The inability of these systems to keep pace and respond quickly to dynamic business requirements has engendered greater interest in enhancing core systems applications, be it by completely overhauling or through selective component replacement.
9. Insurers will adopt alternative ICT delivery models An insurer does not invest as much as a similar-sized bank or capital market firm in ICT, and therefore needs to advocate a more robust, return-on-investment (ROI) approach to ICT spending. To manage expenses, we are recently seeing developing interest in the adoption of alternative technology delivery models such as Software as a Service (SaaS) and cloud computing. Cloud computing offers a flexible, usage-based charging model and transforms investments from fixed to variable expenses. It also provides unlimited scalability and business agility. Once adoption concerns are ironed-out, IDC predicts the cloud will have the potential to be among the most transformative developments in the world of ICT.
7. Insurers will ramp up on fraud management With most insurers lacking the information to accurately identify fraudulent claims, and 2009 being a difficult year for the global economy, it came as no surprise that falsified claims hit all segments of the industry. We see technology innovation elevating fraud investigation, prevention, and detection to a new level in the year ahead. Insurers are adopting remedies such as
10. Carriers will need more rigor around compliance and risk mitigation Consequent to the crisis, regulators are putting forth preemptive reforms to tighten management of insurers. As a result of these compliance requirements, risk assessment, mitigation, and enhancement of corporate governance and disclosure frameworks are hot priorities for insurers. In the year ahead they will focus on demonstrating proactive
The year ahead will see greater utilisation of analytics to more deeply segment customers and provide insight into their minds, enhance the customer experience with more personalised servicing and sophisticated marketing programs.
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risk stewardship and making selective investments around areas like Enterprise Risk Management (ERM) to better align internal risk appetite and strategy and make more intelligent risk decisions.
Focus on reconfiguring projects into smaller, more palatable investments with shorter payback periods as the progress of these can be evaluated at regular intervals to ensure risk and cost are well managed.
Insurers that wish to prosper in this increasingly competitive environment need to shortlist their core issues from our above list based on their own competitive situation, technological maturity, market conditions, business strategy, and risk tolerance. Once these are identified, ensure that concerted efforts are committed into these core areas. IDC provides some key points for insurers: • Keep an eye on cost, but keep a closer eye on productive investments centering on enhancing customer touch points. With insurers facing the challenge of preserving capital in a tough economic climate, merely scrambling to keep the lights on is not a value-building exercise. There is a need to find equilibrium between cost management and growth objectives and to nudge ROI discussions to the forefront. As we climb out from the downturn, insurers should utilise this opportunity to take calculated risks related to strategy and business execution and to capitalise on market opportunities to jump past overtly cautious competitors. Focus on reconfiguring projects into smaller, more palatable investments with shorter payback periods as the progress of these can be evaluated at regular intervals to ensure risk and cost are well managed, and ascertain project milestones are being achieved. Some strategic areas IDC believe can add value to the bottom line include activities focused on: improving
the customer experience and enhancing their relationships to retain and attract policyholders; refining alternative delivery channels to cater to divergent buying preferences of consumers; and augmenting products and services offered to insurance agents to boost their productivity and loyalty. • Be open to innovation and change. While the insurance industry may be the most traditional sector within the BFSI space, there is no escaping the need to continually innovate to capture and exploit new growth opportunities. To maximise opportunities, insurers need to think outside the square, beyond their traditional structures or processes. Perhaps seek fresh perspectives and best practices from another vertical market on issues like product development and marketing strategies (for example from the retail industry), then adopt these new methodologies to transform the organisation. Cultivate a positive technology strategy to benefit from technology developments. While it is not essential to be early technology leaders when it comes to alternative IT delivery models (such as cloud computing), insurers should still strive to be quick followers rather than laggards. • Constantly engage with vendors and ensure that their performance is closely managed and monitored. Beyond thorough selection of vendors with solid underlying architectures, insurers need to actively manage their vendor relationships and engage in a constant dialogue to generate maximum value from these partnerships. This enables the service providers to more thoroughly comprehend the insurers’ needs, better customise updates, and administer support and staff training specific to their requirements.
Melissa Martin is a Senior Market Analyst for IDC Australia, focusing on the demand and application of ICT in specific vertical industries in Australia. Li-May Chew is a Senior Research Manager for IDC Financial Insights (FI) Asia/Pacific, responsible for identifying the latest trends in the Asian risk management and insurance sectors
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