The Role of IT for Business Enablement an Asia Pacific Insurance Executive Survey

8/6/2019 The Role of IT for Business Enablement an Asia Pacific Insurance Executive Survey

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September 2010, IDC Financial Insights #FIN224974

IDC Financial Insights: Asia/Pacific Insurance Advisory Service: Perspective

The Role of IT for Business Enablement:An Asia /Pacif ic InsuranceExecutive Survey

P E R S P E C T I V E # F I N 2 2 4 9 7 4

Li-May Chew

IN THIS PERSPECTIVE

This IDC Financial Insights Perspective draws on the results of ourinsurance market survey carried out in August 2010 across 80 uniqueinsurance organizations in Asia/Pacific. This document contains the

findings and correlated implications from five core questions posed toregional insurance executives on their strategic areas of focus, ITspending directions, investment priorities, and plans for outsourcingspecific to a range of business processes.

S u r v e y M e t h o d o l o g y

With the goal to feel the firsthand industry pulse regarding a couple ofimportant strategic and technology-related questions, we polleddelegates who attended our recent Asian Insurance Congress (AIC)2010 with a quick onsite survey. This was further supplemented with aWeb-based outreach, with potential non-Singapore-based respondents

who did not attend the AIC invited by email to fill in a similar five-question survey.

Note: The AIC is one of Asia's most influential gatherings of insurance practitioners, showcasing a comprehensive research-based agenda blended with technology innovations, business, and operational bestpractices. The 2010 event held on August 26 received overwhelmingsupport, with in excess of 200 senior insurance executives andsponsors comprising CXOs, business-level heads, and senior managersi n a t t e n d a n c e . F o r m o r e d e t a i l s , p l e a s e r e f e r t owww.idc.com.sg/insurecongress/2010/.

This survey was completed between late August and early September2010, with consolidated findings based on responses from 128individuals from 80 unique insurers across 12 regional countries. Toavoid multiple responses from the same organization, we took theaverage weighted scores for each insurer to ensure that there was justone response per insurer per country.

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R e s p o n d e n t s b y J o b T i t l e

Note: 128 respondents are from 80 unique organizations.

Source:Asian Insurance Congress 2010 Executive Survey

Strategic Priorities

Our first query looked at the top strategic priority for regional insurers.Herein, the adage that "customer is king" continues to hold true, asclients increasingly demand individualized products, services, and pricing. As such, "customer-centric projects" ranked as the pole

position with a score of 4.19/5, meaning that in the near to mediumterm, we would see strategically astute insurers continue to gravitate to product-plus-consumer focus and drive breakthrough efforts incustomer-centric selling (see Figure 3).

This would bear witness to insurers not only revisiting their repositoryof traditional insurance products but also expanding offerings to otherslike variable annuities type and investment-linked products, healthinsurance, and microinsurance in emerging populous nations likeIndia, Indonesia, and Vietnam. These newer lines of businesses arepoised to become new hotspots for carriers as they attempt to capturealternative customer segments and diversify revenue streams. (For an

update on health and microinsurance in India, please refer toBusinessStrategy: Country Report Spotlighting the Indian Insurance Sector,IDC Financial Insights #FIN224856, September 2010.)

The need to enhance customer engagements also has insurers bankingon business analytics to refine customer experiences through moregranular segmentation, differentiated customer service, and custom branding for specific market segments. For instance, progressiveinsurers in Asia in more mature nations like Australia, Hong Kong,


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and Singapore are exploring the use of high-technology interactivetouch points including Web 2.0 applications such as social networkingsites and blogs to promote products to the Generation Y clientele.

F I G U R E 3

I m p o r t a n c e L e v e l o f I n s u r e r ' s S t r a t e g i c A r e a s o f F o c u s

Q. On a scale of 1 to 5, where 1 = not important and 5 = very important, please indicate which

of these strategic areas your insurer is focused on in the near to medium term.

n = 80 unique organizations

Note: There were 128 respondents from 80 insurers. Where there were multiple respondents

from the same insurer, we took the average scoring for each category for that insurer, such that

there is only one response per insurer per country (e.g., there were 9 respondents from AIA in

Singapore, but their replies were averaged to generate one response from AIA in Singapore).


Next on the ranking scale is "compliance and risk management" global markets have grown increasingly entwined and riskier by theyear, and insurers understand that being in the business of riskaversion, they need to astutely manage their personal risk profile. Afocus on regulatory compliance, risk assessment, and risk mitigationwould be reflected in risk-savvy insurers demonstrating proactive riskstewardship, conducting internal risk trainings, and making selectiveinvestments in fraud management systems.


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Rounding out the top 3 strategic focus areas is "the agency network" the traditional system of selling insurance through captive agentsremains the predominant distribution channel for insurers across theAsia/Pacific region, and even more so for the developed nations wherelabor is relatively abundant and cheap and where policyholders still

demand the familiarity and comfort of a face-to-face mode ofinteraction. Agents play an especially crucial role within the lifeinsurance segment, where compared with the nonlife sector, productsare relatively more complex, require a much larger financialcommitment, lock customers in for a substantially longer time frame,and typically have greater client requirement for individual advice.

Change in Technology Spending

This section gives a quick indication of the annual change intechnology spending for 2010 vis--vis 2009, while the subsequentsections indicate where these monies are being invested.

As we emerge from the crisis, recovering spending budgets allow forinsurers across Asia/Pacific to create a more dynamic businessframework via the assistance of technology. Consequently, we seeinsurers' business goals being infused with an even more distincttechnology flavor. Supporting that is the industry's rising technologyspending.

Figure 4 illustrates that 65 out of the 75 (or a whopping 86.7%)responding institutions anticipated an increment in IT spending for2010, with the majority in this group projecting a 1020% increment.Nine institutions (12%) expected spending to remain flat, while only

one lone respondent indicated a decrease in technology spending for2010.


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F I G U R E 4

C h a n g e i n I n s u r e r ' s I T S p e n d i n g f r o m 2 0 0 9 t o 2 0 1 0

Q. My insurer will be increasing IT spending in 2010 (versus 2009) by:

Notes:

Five organizations did not respond to this question.

There were 123 respondents from 75 insurers. Where there were multiple respondents from the

same insurer, and where there were different percentages given for the YoY increase in IT

spending for that insurer, we took the most frequently recurring reply as the relevant response,

or used the feedback from the most relevant (e.g., from the CTO or CIO)/senior respondent from

that insurer.


Purchasing Decisions

As to where these funds are being channeled, Figure 5 illustrates that priorities are all rather closely ranked, an indication that insurerswould love to invest in several IT solution areas at the same time,budgets permitting.

However, the three areas that pull up in front are policy generation andadministration; accounting, reporting, and compliance; and claimsmanagement, with scores of 3.683.82 out of 5. Policy generation andclaims management are core solution areas and the lifeblood of any

insurer, so these come as no surprise as funds need to be constantlyinvested to ensure that their core applications remain adaptive andproactive to changing environments.

We believe that some of the respondents would also be makinginvestments to overhaul their legacy IT systems that are not scalable toaccommodate growth or consolidating disparate platforms built around product silos. Modernizing core applications would greatly improve


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process flexibility, support expansion and development, enable faster product rollout, and assist in the creation of a more customer-centricenterprise.

F I G U R E 5

I m p o r t a n c e L ev e l o f I n v e s t m e n t f o r I T S o l u t i o n s

Q. On a scale of 1 to 5, where 1 = not important and 5 = very important, please indicate the

priority level of investment for the following IT solution areas:

n = 80 unique organizations

Note: There were 128 respondents from 80 insurers. Where there were multiple respondents

from the same insurer, we took the average scoring for each category for that insurer, such that

there is only one response per insurer per country.


Increasingly, these core architectural solutions could also be Web based, given the need to create a flexible, dynamic, and more cost-effective IT infrastructure. However, while these "alternative ITdelivery models" such as cloud computing do have their advocates indeveloped nations such as Australia, they are largely still classified as"emerging" and have yet to see adoption accelerate among mostinsurers in Asia/Pacific (refer back to Figure 3, where alternative ITdelivery models ranked at the bottom in terms of strategic initiatives).


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Outsourcing Arrangements

In two of our previously published documents, we wrote about Asianinsurers' predisposition to internally design and develop their coreinsurance application solutions and their reasons for doing so (seeIn- Housing: Are Insurers Predisposed to Internal Applications? IDC

Financial Insights #FIN220586, October 2009, and InsuranceVendors: Spotlighting the Major Players in Asia/Pacific, IDCFinancial Insights #FIN220327, October 2009). Consequently, we sawtha t within Asia/Pacific, insurance technology vendors' maincompetition stems not so much from fellow peers but from the insurersthemselves as a high proportion of the carriers are developing,designing, enhancing, or maintaining their business applications in-house rather than procuring from any technology firm.

With that in mind, we were curious to see whether there has since beena mindset shift, and whether insurers have increased their level ofbusiness process outsourcing (BPO) the past 12 months perhaps to

manage costs, refocus resources on developing the core businesses,access operational best practices not available in-house, and speed upimplementations of revised business processes (see Figure 6).

F I G U R E 6

A g r e e m e n t L ev e l T h a t I n s u r e r I n c r e a s e d L e v e l o f O u t s o u r c i n g

f o r B u s i ne s s Pr o c e s se s o v e r t h e P a s t 1 2 Mo n t h s

Q. For this statement: "My insurer has increased the level of outsourcing for business

processes over the past 12 months" do you:

Notes:

Four organizations did not respond to this question.

There were 124 respondents from 76 insurers. Where there were multiple respondents from the

same insurer, and where there were different replies given on the change in the level of BPO,

we took the most frequently recurring reply as the relevant response, or used the feedback from

the most relevant/senior respondent from that insurer.



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From our poll, we discovered that 36.8% of respondents were sittingneutrally on either side of the statement and have not seen outsourcingincrease or decrease of late. Perhaps the recent increase in levels ofgeopolitical instability and the implied higher level of global offshorerisk to business process fulfillment have resulted in some carrierstaking a wait-and-see attitude when it comes to outsourcing of their

processes.

However, the eye-opener here is that an even more substantial 40.8%agreed/completely agreed that they have increased their level ofoutsourcing in recent times. It seems that insurers have started toexplore a degree of outsourcing to the vendors, possibly driven by theneed for increased organizational flexibility, and to reduce costs bycontracting business functions to third-party service providers based ina more cost-competitive country. Here, we see proactive insurancetechnology vendors pumping in additional resources to focus on theinsurance vertical and pushing ahead to forge relations with potentialinsurance clientele.

Note: We likewise posed this same question to a group of regionalbankers in a recent poll. Interestingly, a higher percentage (32.2% of bankers versus 22.4% of insurers) somewhat disagreed/completelydisagreed that their level of BPO has increased the past year, while onthe flip side, a smaller 21.4% of bankers (versus 40.8%; refer back toFigure 6) agreed/completely agreed that outsourcing has risen of late.This could be because insurers typically trail the banks in the amountand extent of outsourcing they already do, meaning that IT outsourcingby the insurance industry is still at a relatively lower base, with morelikely to undertake outsourcing going forth (see Figure 7).

Observing such an increase in outsourcing activities, our final questionsurveyed the 80 organizations on the areas that they have outsourced,or are likely to outsource.

Forty-three, or more than half of these insurers, have outsourced or arelooking to outsource printing, given that this is a peripheral activity.Herein, we can assume that several of these would also incorporate adigitalization and imaging component, with the insurers initiating theconversion of realms of paper d ocuments (clie nt information, proposals, etc.) into certified electronic originals. As customer basescontinue to expand with rising insurance penetration rates, the

resulting overflow of paperwork threatens to bog down operations. Assuch, automation makes perfect sense as it allows for immediatedocument access for all authorized personnel, regardless of time anduser location. Going digital also eliminates paper bottlenecks andlowers paper and mailing costs, storage and distribution expenses, andall other associated costs.


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vendors provide IT support and maintenance for insurers' policyadministration. These include functionalities such as policy issuance;change, reversal, and resetting of policies; administration of changeoptions; accounting and taxation component; correspondencemanagement; and fund management.

LEARN MORE

R e l a t e d R e s e a r c h

Business Strategy: Country Report Spotlighting the IndianInsurance Sector (IDC Financial Insights #FIN224856, September2010)

Business Strategy: Notes from the Singapore InsuranceRoundtable (IDC Financial Insights #FIN224172, July 2010)

Business Strategy: Enhanced Role of Analytics for the FinancialServices Institution of Today (IDC Financial Insights #FIN223523,June 2010)

Business Strategy: A Review of Insurance IT Executive 2009Survey Results (IDC Financial Insights #FIN222001, February2010)

Asia/Pacific Insurance 2010 Top 10 Predictions: Prescriptions forthe Upturn (IDC Financial Insights #FIN220980, December 2009)

In-Housing: Are Insurers Predisposed to Internal Applications?(IDC Financial Insights #FIN220586, October 2009)

Insurance Vendors: Spotlighting the Major Players in Asia/Pacific(IDC Financial Insights #FIN220327, October 2009)

Best Practices: Singapore Insurance Update 2009 (IDC FinancialInsights #FIN219548, August 2009)

Asia/Pacific Insurance 2009 Top 10 Strategic Initiatives: CostConcerns in the Wake of the Credit Crisis (IDC Financial Insights#FIN216488, February 2009)

InsureTech 2008 Executive Survey (IDC Financial Insights#FIN214650, October 2008)


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C o p y r i g h t N o t i c e

Copyright 2010 IDC Financial Insights. Reproduction without written permission is completely forbidden. External Publication of IDCFinancial Insights Information and Data: Any IDC Financial Insights

information that is to be used in advertising, press releases, or promotional materials requires prior written approval from theappropriate IDC Financial Insights Vice President. A draft of the proposed document should accompany any such request. IDCFinancial Insights reserves the right to deny approval of external usagefor any reason.

The Role of IT for Business Enablement an Asia Pacific Insurance Executive Survey

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