By DONALD CANNING, worldwide insurance managing director, financial services, Microsoft
Sophisticated customers are demanding more choices, increased transparency and greater convenience. Governments and markets are demanding transparency and adherence to strict safeguards related to data, risk and business practices. Competition is emerging from new players with new business models and nontraditional delivery processes.
Long-held assumptions about the place of insurance companies in the value chain are suddenly open to question. As a result, the insurance industry model is subject to global impacts in five key areas: new markets, new competitors, new partnerships, new opportunities and new demands for accountability
The rising prosperity of emerging economies such as China, India, Brazil, Eastern Europe, Southeast Asia and Latin America has created a vast new potential market for insurance, particularly P/C personal and commercial for small business. Large insurers in developed economies are pursuing several strategies to penetrate these markets.
Acquisition of local carriers offers a quick way to obtain market share, visibility, and expertise in local cultural norms and governmental procedures. However, the acquiring company faces the standard challenges of domestic M&A activity--increased by an order of magnitude.
Local carriers may not have modern data systems. Local practices may also be undocumented and informal, and important business relationships might depend on the knowledge and personal connections of key personnel.
Successfully incorporating an acquisition in a foreign market is not just a task of data integration; it is one of knowledge integration. Processes and collaboration portals to enable knowledge sharing and collaboration among people should accompany typical investments in structured database and records-management systems.
Partnerships are a potential alternative to direct acquisition. Rather than incur the costs of an acquisition, insurers may opt to partner opportunistically with local firms to establish a presence in a new market. Such partnerships can take a wide range of forms, including business technology or process outsourcing, value-chain integration, off-shoring or white labeling through distribution partners.
Several technology innovations will help support partnership models in the years ahead. Content-based security can help protect data that is shared on public networks or across extranets, thereby reducing the need to maintain perimeter-security firewalls that inhibit interorganizational collaboration.
Today, information rights management technology protects individual documents using encryption and permissions managed through a specialized server. IRM technology is also becoming more granular, providing the ability to lock down individual formulas or cells in a spreadsheet, fields in a database or words in a document to support risk or compliance policies.
Partnerships can also benefit from better tools for structured and unstructured collaboration. In addition to the technologies previously mentioned, shared workspace, document lifecycle management, and project management tools can help geographically distributed teams work together to develop new products and services, collaborate on claims servicing, share in the development of sales and marketing materials, and collaborate around shared market intelligence or business data.
Historically, insurers' investments in IT systems, actuarial data and agent networks, plus regulatory complexity, have all combined to serve as a high barrier to entry for new competitors. Now, new Software-as-a-Service models enable almost anyone to obtain data processing capacity without substantial capital investment.
The Internet facilitates direct transactions between the company and the customer without the need for an agent. It also facilitates the creation of more agile and effective distribution networks that make agents and brokers more integral to serving the customer.
Such capabilities make the precise source of any competitive challenge impossible to predict. A flexible, adaptable IT infrastructure can be an enormous asset in enabling a rapid response to new competitive challenges or opportunities.
Insurers can reduce their competitive exposure by identifying their core competency and divesting themselves of all other activities. Some niche insurers are moving away from underwriting and repositioning themselves to become specialists in areas such as risk management or asset management.
This change entails refocusing the entire business model--from sales and marketing to operations and IT--away from being a transactional business and toward more of a consultancy or knowledge business.
The increasing value of knowledge in today's economy also creates opportunities to expand traditional insurance coverage to hedge against risks to intangible sources of value like intellectual property and reputation. As reputation systems become more pervasive, insurers might find new sources of revenue in modified versions of errors-and-omissions coverage tailored to individual entrepreneurs.
NEW DEMANDS FOR ACCOUNTABILITY
Although governments are the traditional source of regulatory pressure, demands for transparency and accountability are now also coming from informed and empowered customers and from the market.
The claims process is one that would benefit from increased transparency. Customer satisfaction and retention can be improved through transparent claims processes and transparency on a determined settlement amount. It would not be difficult for an insurer to put in place a tracking system, send customers regular e-mails or text messages to cell phones, or provide automated voice updates on answering machines.
March 3, 2009
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