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From Resource, May 2008
Capitalizing
on Insurance Globalization:
IT’s Crucial Role
Insurers face numerous
issues and decisions in expanding their operations around the world.
By John Mara
Vice President, EDS
L
ife
insurance companies have more incentive than ever to pursue business beyond
their home markets. As over-60 populations expand in western countries, and
markets around the world deregulate and become more open, globalization is seen
as a key to achieving greater financial consistency and accessing new customer
pools for business growth. Rapid economic expansion in
Asia
and other regions is creating significant new demand.
The
globalization trend is evident in the results of a 2007 survey commissioned by
EDS and the American Council of Life Insurers (ACLI).
While less than a quarter of the international insurance executives
surveyed consider their companies to be global today, nearly half expect they
will be more global in five years time.
The
survey, conducted by the FT Research Centre and Harris Interactive, captured
responses from more than 200 insurers around the world, including some of the
world’s largest companies. The survey also obtained expert analysis in 18
interviews with CEOs and other top executives from leading companies in
insurance worldwide.
One
key message emerging from the survey regarding insurers’ globalization
efforts: effective use of information technology will be critical.
Making the Right Moves
Insurers face numerous issues
and decisions in expanding their operations around the world. One key
consideration is whether to expand organically or by making acquisitions.
While
some of the executives surveyed indicated they would pursue organic growth or
acquisitions as mutually exclusive strategies, others plan to employ an organic
growth strategy supplemented by acquisitions. Almost 70 percent of respondents
believe making acquisitions helps companies globalize faster. However,
successful acquisitions can be particularly difficult to pull off in the
insurance industry, where companies often have multiple information technology
systems.
Entering
new markets also brings cultural challenges. While this is true for any company,
it’s particularly the case for insurers, as not all policies work in all
markets. Some 90 percent of respondents believe integrating with local cultures
is critical to become global successfully.
There
also are operational challenges. Insurers must decide how best to manage their
global operations and strike a balance between home office control and local
subsidiary autonomy.
Some
two-thirds of respondents indicated they were following a regional hub model –
“closeness” to local
markets, along with the economic benefits of shared regional services. An
executive at a company following this model noted, “We feel that it enables
you to react to the requirements that the market puts on you more swiftly than
perhaps just having one center globally and operating out of that.”
Harmonizing Local Touch
As they expand their operations
around the world, insurers must decide which corporate operations to centralize
and which to organize on a local basis. Most survey respondents cited branding
and marketing as functions that were able to operate on a global basis.
Only a
minority felt the same about sales and customer contact, which were seen as
requiring more local contact. One executive described the brand as “the glue,
or the thread that can be stitched to get the garment together. The actual
pieces of the garment, being the sales and marketing at a local level, have to
be highly customized for that market.”
Similarly,
most respondents cited investment and capital management as functions that have
been effectively globalized, whereas only a minority felt likewise about product
development.
An
added complication for insurers is that the markets in which they operate are
often highly regulated. Several interviewees noted that as they expanded around
the world, the regulators they dealt with multiplied.
Despite such challenges, those
insurers that have expanded around the world believe it has been worthwhile.
Many - although not all - of the executives interviewed thought their group’s
global expansion was a change for the better because of the way it was viewed by
stock market analysts and ratings agencies. Some 56 percent of those surveyed
believed that bolstering their global footprint increased shareholder value.
Sorting Out Aspirations and
Reality
The survey revealed a large gap
between the intention to globalize and implementation of operations on a global
level. Although executives clearly intend to globalize their business and
believe many functions can operate globally, very few companies actually conduct
these functions on a global level.
The
gap between intention and action was particularly high for IT. While two-thirds
of survey respondents agreed that information systems and applications were
enabling globalization, less than a quarter had put IT systems in place on a
global level.
Several
factors conspire to create an inconsistent technology platform, including legacy
systems inherited from acquired companies, complexity and cross-border
requirements. While making the move to a common platform can be difficult, many
of the industry leaders interviewed felt the shift can have a positive bottom
line impact. Said one CEO, “I think we have to be careful that we don’t try
to fit one size over a whole range of countries and cultures, but it certainly
helps to be able to use common platforms where possible…”
Leading
insurers are exploring how to create an IT environment that will support
globalization.
Some
are tapping new integrated life insurance and wealth management software
solutions.
These
solutions provide a spectrum of capabilities encompassing the customer,
distribution channels and the product manufacturer.
They make it easier to operate in different countries and languages and
to integrate mergers and acquisitions into existing processes.
These
solutions provide functionality including policy administration, retirement
product development and administration, agency management, and calculation
platforms for product development and implementation.
Life
insurers also are outsourcing systems and client servicing to companies that
have already invested in consistent, shared platforms with common standards. For
these companies, outsourcing provides an alternative to migrating to an
integrated common platform themselves. According to one executive surveyed,
“Outsourcing to the right partner [is most important] because you want to have
better processes and local competence and lower costs.”
Seizing the Moment
Globalization is presenting
insurance companies with unprecedented opportunities and monumental new
challenges. While many insurers are just beginning the journey toward globalized
operations, it is clearly one they must make. Companies that deploy and manage
IT resources effectively and capitalize on emerging platforms and capabilities
can emerge as winners in this dynamic new environment.
Visit EDS at www.edssolcorp.com
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