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By SAM MEDINA, head of insurance strategy and growth, for Tata Consultancy Services, where he works with C-level executives on how to accomplish IT transformations and optimization

The initiatives and project requests that insurance industry CEOs and chief operating officers receive from their business leaders and managers can range from new approaches to market segmentation to changes in distribution channels; from streamlining business processes to investments in new underwriting, policy administration and claims systems; from vendor and data-center consolidation to acquiring new companies that deliver insurance services in the small and mid-tier markets.

1. Business Process Optimization: Projects to streamline processes to eliminate redundant work, reduce expenses and improve efficiency. A good BPO project proposal specifies changes that will result in the company's ability to scale its operations up or down depending on the market cycle. The best meets all these five criteria: scalability, flexibility, efficiency, agility and raising the barrier to entry. Because of the importance of business processes to the company's present and future operations, demand quantifiable results for each criterion.

2. IT Optimization: Project requests to optimize IT operations and its organization structure to reduce operating expenses, as well as to deliver the IT services needed by the company in the future. A good IT optimization proposal aims at improving the ratio between the number of resources needed to run the business versus to change the business. An excellent project proposal is the one that's aimed at transforming IT operations so that it can meet the business demands in the three- to five-year time horizon. Similar to BPO proposals, IT optimization project requests must include improvements in scalability, flexibility, efficiency, agility and raise the barrier to entry.

3. Predictive Analytics: Project requests to promote the use of predictive analytics for customer and market segmentation, determining which products are likely to be profitable, and for detecting fraudulent claims. A good project proposal combines the use of data mining and predictive analytics to identify hidden correlations that can result in offering new products and in calibrating rating and pricing. The best proposal utilizes analytics to determine which transactions are likely to be low value and should be processed leveraging automation, and which deals are high value and require the expertise of a seasoned underwriter or actuary.

4. Enterprise Content Management: Project requests to move from a paper-rich to an electronic document environment. A good proposal in this area includes creating efficiencies in policy administration and claims-processing by moving to electronic documents. An excellent project proposal enables a company to exchange information and documents electronically, both internally and with other companies.

5. Business Intelligence Self-Service, and Information Management: Project requests to enable every department to have access to business information, analyses and reports with minimum to zero support from IT. A good project request creates an information management discipline and approach to ensure that information is current, accurate, accessible and easily exchanged across the company. This includes the efficient creation and distribution of both financial and management reports. The best project proposal includes leveraging information management as a competitive advantage (e.g., having information that other companies do not have or having quick access that others cannot replicate)--thereby raising the barrier to entry.

6. Enterprise Risk Management: Project requests to identify and mitigate all types of risks and leverage technology to efficiently monitor risks and meet regulatory compliance requirements. A good project proposal includes the coupling of business process optimization activities with risk monitoring. An excellent proposal enables a company to track risks embedded in each insurance policy and reinsurance contract, which can help ensure that the company has "a healthy book of business."

7. Market Entry Catalysts: Proposals that take advantage of third-party offerings and packages that provide end-to-end operations and systems solutions so that an insurer can enter new markets quickly and can focus on the core business of insurance. A good proposal clearly delineates between the insurance core functions and those that a third party has to deliver. An excellent proposal identifies a strategic partner that has the end-to-end solution and has a global delivery capability to be able to enter new markets--a partner that can deliver efficiency, flexibility, agility and scalability.

8. Managed Services: Proposals that leverage third-party services to focus the company on the core business and on core functions. A good proposal includes leveraging third-party services for document management, noncore business processes, noncore IT services, catastrophe modeling support services, billing and cash management, and HR benefits and payroll processing. An excellent proposal leverages BPO and IT optimization, smart-sourcing and smart-shoring in order to gain efficiencies, scalability and flexibility.

9. Post M&A Integration: Project requests that result in a company reducing the time to complete post M&A integration activities. A good project proposal includes the creation of well-defined and optimized business processes and IT services so that an acquired company can readily be integrated into the core business. The best project proposal includes investments in scalable systems and in enterprise data management to facilitate the integration of the acquired company's operations, processing and data services into the acquiring company.

THE FIVE CRITERIA

These could be considered safe bets for insurance CEOs and COOs, but for any proposal, executives should a two-step review process. The first step is to examine each proposal separately using the five criteria mentioned above:

Scalability: Will the project enable the company to scale up or scale down operations, processes, systems, and human and financial resources in reaction to market trends and business challenges?

Flexibility: Will the project increase flexibility with respect to adding new products and services, entering or exiting markets and lines of business, and in incorporating new ideas, technologies and ways of doing things?

Efficiency: Will the project streamline processes, eliminate redundant work and therefore drive down operating expenses?

Agility or Nimbleness: Will the project improve the company's reaction time (e.g., time to market new products, to enter or exit markets, and to shift distribution channels)?

Raising the Barrier to Entry: Will the project result in increasing assets or customer loyalty, or a competitive advantage that is difficult to replicate?

TAKING A PORTFOLIO APPROACH

For those requests that successfully cleared this first hurdle, the second step is to review these "finalists" as a portfolio. By doing so, the following three common pitfalls can be avoided:

Hidden Interdependencies: Problems caused by projects that are conflicting or are vying for the same resources at the same time, and from projects that depend on the right sequencing of plans and activities.

Suboptimization: Projects that result in the optimization of a particular business unit, or the optimization of a department's business processes without assessing the impact on the company as a whole.

Unintended Consequences: Problems caused by projects that are so narrowly focused that unforeseen negative outcomes or side effects are produced. For example, a launch of a new product or an entry into a new market could result in overextending operations and a degradation in customer service.

Finally, in an industry that is cyclical, and in a business that is risk-assuming, having the ability to scale up or down may be one of the most important attributes an insurance company can have.

July 1, 2009

Copyright 2009© LRP Publications