Archives for July 2009

Market-specific core applications vs. Cross-border single application

Many insurers – especially in Europe – face the challenge of conducting business in different countries. Having activities in different geographies has its good side for instance it allows them to diversify their risk but it has also its bad side notably when insurers want to define a strategy in terms of core applications deployment. Insurance markets have very different distribution dynamics and risk pricing experience in one market might not be relevant for another. In addition, differing tax and regulatory treatment, as well as different currencies and languages can act as further roadblocks. Overall insurers can choose between two strategic alternatives: deploy a single core application cross-borders, or implement a dedicated core application in each market.

There are many important factors that have to be taken into consideration when making this very important decision. A cross-border deployment requires insurers to consider specific issues such as the following:

The complexity of the project: implementing a core insurance application in one market is already something difficult therefore deciding on a cross-border deployment is certainly very complex. In this context, it is important insurers take the necessary time to carefully analyse and plan all aspects linked to such a project. In particular, Celent considers it is highly important that insurers use integrators having already a strong experience in working in cross-geographies projects.

Shared service centre requires multiple language skills: providing a service centre for different European countries implies that multiple languages have to be offered without giving the impression to customers that their needs or requirements might be misunderstood for cultural reasons.

Product complexity: beside the project complexity, a core application such as a policy administration system has to offer a high level of flexibility if insurers want to have a single platform to deal with different set of regulations, taxes, requirements, etc.

Change management: such a project has more to do with managing complexity and change rather than process and technology. Therefore Celent thinks that the project management side must be perfect and coordination of activities and tasks between stakeholders during the implementation and deployment cross-borders have to be delicately thought and then professionally executed.

In Europe, some insurers prefer prioritizing the approach consisting in implementing a dedicated core application in each specific market. In emerging markets (Eastern Europe for instance) where it is important to acquire market shares rapidly, they believe that priority should be given to a partnership with a local vendor having a certain experience and expertise in the market. Then, as soon as the market will have reached its maturity, these insurers will certainly start rationalizing their core application landscape in order to gain competitive advantages. But for the moment, these players prefer acquiring market shares as fast as possible before these markets reach maturity.

Both approaches are interesting and deserve a careful attention. This is why Celent is planning to publish a research about this topic before the end of the year. In the meantime, Celent recommends insurers to have a look at the following report: Policy Administration Systems for General Insurers in Europe 2009 (Celent will publish a report about policy administration systems in the life sector in Europe in the 3rd quarter of 2009 too). Indeed, whatever the strategic approach insurers choose, they still need to find the best policy administration system(s) that will help them optimally execute actions supporting their long term strategic objectives achievement.

8.6.09: Property/Casualty Policy Administration Systems in North America: What's Hot and What's Not

Celent senior analysts Donald Light and Jeff Goldberg This event is free to Celent clients and the media. Non-clients can attend for a fee of USD $249. Celent will contact non-clients after they register for credit card information. Please click here for more information.

Focus is on costs reduction

Some observers think that we are at the beginning of the end of this financial crisis and its consequences while others believe this is just the end of the beginning. Celent has given its thoughts on the impact of the financial crisis on insurers in a report published in September last year: Bad News on the Street: Insurance IT Strategy and the Financial Crisis. Since then the crisis has become a global recession and its impacts are affecting the financial industry as a whole. Of course the insurance sector is also hit and strategists have to respond with appropriate actions. Definitely one of them and certainly one of the most important one has to deal with costs reduction. In a recent article published by Bloomberg, whose title is Insurers May Be Forced to Reduce Costs, Outsource it appears that European insurers of all sizes are starting to implement drastic measures in order to reduce costs. Personnel and information technology are certainly the most important expense factors in the insurance industry but it seems that insurers have understood that technology can be an enabler to reduce costs and not only an important cost position in their profit and loss account. In a series of quarterly reports focusing on the current recession and how insurers tend to react to the crisis (the first report has been published in May 2009: Handling the Crisis: Update on Q1 Insurance Industry Expectations and Strategies), Celent tries to track how insurers handle the crisis and what particular initiatives they take in order to go through this difficult time and weather the storm the best way they can. In the first report looking at the first quarter of 2009, it seems that insurers understand that IT can help them reduce costs and therefore they don’t necessarily perceive IT only as a cost driver any longer. What will be interesting in Celent’s approach is how initiatives will evolve in the near future. Therefore I invite all our members to check our next reports. The next one will be reviewing insurers initiatives to handle the crisis in the second quarter of 2009.