Like the rest of the world, reinsurers in Asia are undergoing change, but with a distinctive local flavour. Also as elsewhere, the use and development of IT for the reinsurance sector has followed the fortunes of the market.
The story of those fortunes is well known. During the mid and late 1990s, growth opportunities slowed, and many markets contracted. Encouraged by the International Monetary Fund and the trend towards globalisation, lawmakers began to deregulate. Despite the modest recovery from the financial crisis of 1998, Asia is once again facing the prospect of another economic downturn. As the pie shrinks, the pressure increases to reduce administrative overheads and to place operations where they can operate most efficiently, such as tax-friendly Singapore and Labuan.
Typically, local reinsurers have operated with legacy computer systems which are not integrated. Data needs to be rekeyed at a number of stages. Often they display an overzealous use of spreadsheets and PC-based applications which were written to satisfy an operational need, but have evolved to become a systems overhead.
In parallel to the regional decline has been the rapid evolution of technology and telecommunications. The internet has grown from virtually nowhere to become almost omnipresent. E-business has arrived as the catalyst for change.
Many Asian-based reinsurers have been used to following a traditional closed business model. This is heavily paper-based, relying on face-to-face meetings and communications by mail, fax and telephone. Information is passed between cedant and reinsurer only as necessary, and in a non-standard form. Reinsurers often need different ways of handling the information from the various organisations they deal with, adding to their overhead.
Previous Electronic Data Interchange initiatives such as RINET and LIMNET have failed to take off in Asia because the cost was beyond the reach of smaller companies. A local initiative by the Monetary Authority of Singapore – REACH – was shelved because the industry was not ready; REACH was ahead of its time. In addition, personal relationships are still heavily valued. Asia's insurance industry is still very conservative.
With the advent of e-business, this is gradually changing to incorporate the best use of technology, while retaining personal relationships. It is widely accepted that industry expenses can be reduced by over 90% through the appropriate use of e-business. In adopting it, reinsurers can remove the mundane costs of redundant processes, and can devote more time to higher value personalised services.
E-business lends itself very well to the sector, because there is no physical product as such. Transactions can be conducted online with both the end product (the facultative slip, the policy schedule, the bordereaux) and the payments transmitted electronically. With the internet providing the global, low cost communications backbone essential for e-business, we will see the freer exchange of information between companies reduce business process inefficiencies, lowering expenses incurred along the value chain. Change is happening, albeit cautiously. Some global reinsurers are adopting a wait-and-see approach, with initiatives being tested out first in Europe before they are rolled out to their Asian operations. Meanwhile the more enterprising Asian reinsurers are beginning to capitalise on the potential of e-business. For these companies it is necessary to get the right building blocks in place as the foundation. This means an open and fully-integrated back-office system, where data is captured only once, avoiding the duplication of effort.
Systems must be open, meaning they are web-enabled to take advantage of cheaper lines of communication, with the ability to interface with other systems anywhere in the world, and with e-mail and fax servers for seamless issue of documents and correspondence. This, along with the right technical architecture, is the necessary stepping stone to achieving operational efficiency.
As an example, we recently deployed our X-RE reinsurance application for one of our customers – Sumitomo Marine & Fire – at its subsidiary in Ireland. The system, which is hosted at Sumitomo's offices in Singapore, runs on a browser and was rolled out to the Ireland operation and live within a couple of weeks. Using a sophisticated data security solution which employs advanced encryption technologies, data is captured in Ireland directly and securely to the server in Singapore without any degradation of user response times.
With the focus on minimising overheads, staying within underwriting limits and accepting only profitable business, it is no surprise that the Asian reinsurers are now implementing advanced business analysis capability.
Many reinsurers have moved beyond the standard daily, weekly and monthly reports and now are adept at using report-writing tools to build their own reports. But traditional Management Information System reports are often too late, and of limited value. Report-writing tools are constrained by legacy database designs which limit their ability to generate more complex reports within an acceptable timeframe. There is a need for more detailed analyses and reports at varying frequencies and higher speed. Reinsurers need to analyse the portfolio from cedants for profitability before, as well as after accepting them. They need to be more agile to survive, and to empower users to have more control over portfolios.
Companies are addressing this by introducing more sophisticated business intelligence solutions. Having the capability to segment the portfolio and analyse for trends, whether it be in lines of business, business partners, channels, etc, it is imperative that cost-effective solutions are implemented quickly in order to achieve returns on the investment. Some companies are building their own data warehouses, but an effective data warehouse needs a proven design which requires significant expertise and time to design and implement. However, pre-built solutions are available, requiring only a small amount of customisation. With them, reinsurers have access to industry standard analyses and reports with the ability to ‘slice and dice' information to identify trends and profitability. Sumitomo Marine & Fire has deployed a system allowing it to monitor remotely the Asian and Irish businesses from the head office in Tokyo, via the internet.
The global reinsurance industry has seen a growth in the number of trading exchanges for reinsurance. The larger reinsurers are building their own websites following the auction model. Others are grouping together to launch joint ‘independent' exchanges. These exchanges currently handle the simpler facultative covers and catastrophe layers, which are the easiest to automate.
In Asia there is still a reluctance to place business online for all to see, and brokers will continue to play an important role in the placement process. Thus, insurance portals and exchanges are less common than elsewhere. Only once the exchanges are proven is it likely that they will be accepted in Asia. For now, data exchange will be carried out more on a one-to-one, business-to-business level.
The Asian difference
Asia is a large and diverse continent. Alongside the cultural differences are the complexities of different regulatory bodies at various stages of evolution and openness. While much of Europe has a common governing and standards-setting body in the European Commission, Asian countries operate mainly independently. There is ASEAN, but it is still comparatively underdeveloped. The Asian differences create a challenge for US and European companies wishing to operate in Asia, because they cannot simply roll out a computer system developed and used in their own country. It is necessary to understand the countries, their cultures, business protocols and statutory requirements in order to succeed.
Yet the internet era has arrived, and Asian companies which do not fully exploit it will almost certainly be left by the wayside. Over the next few years we can expect to see the following developments for reinsurers in Asia:
Reinsurers in Asia are being challenged by the internet to change traditional approaches to business. The price of not doing so may be high indeed. Those who are first to web-enable will be in the best position to leverage future success. Businesses will undergo constant evolution and business decisions will need to be made quickly supported by the most accurate and up-to-date information. Systems will become more open, integrated and transparent, driving faster and more efficient exchange of data down the whole value chain. Asian reinsurers should fasten their seatbelts and prepare for the journey ahead.