Marcus Broome of ROOM Underwriting Systems Ltd, looks at the problems presented by conducting insurance and reinsurance business on a global scale, and examines how specific IT strategies can combat them.
Global reinsurance and insurance services are more and more offered by single world class organisations with a presence in many of the world's financial centres. These insurance giants are increasingly seeking to promote themselves as providers of a wider range of financial services, enabling substantial growth as their line of products expands alongside their greater geographic reach.
As well as providing opportunities for growth, having a global presence can also present threats in the form of inefficiencies, lack of communication, and lack of access to common data and knowledge in all locations. The traditional problems associated with rapid growth are not reduced because of the vast scale of the global players; instead they are augmented.
To take what is probably a common example: a major corporate customer instructs its broker to obtain a price for insurance cover. The broker obtains a price in the US, and later on, in another time zone, gets a lower quote from the European office of the same insurer. The first price was keen enough to get a firm order.A global insurer can unwittingly undercut its own (perhaps already business-winning) premium. The business can attack itself and not know it has done it. More controversially, underwriters' remuneration packages can provide an incentive to obtain business, sometimes to the detriment of the enterprise. There are good arguments for market forces and competition, even sometimes for internal competition. There are certainly good reasons for paying underwriters profit commission. But equally, nobody suggests companies should not know where, when, and how internal competition is occurring within their own group. As in all international businesses, it becomes crucial for corporate knowledge to be accessible in all locations at all times.
Further distribution channels such as binding authorities exacerbate the problem. The broader the reach of the business becomes, the greater the opportunities. In parallel with this, the problem of control grows too.
This same lack of central knowledge can also cause substantial cost inefficiencies - each office might have to purchase its own reinsurance - possibly leading to an overspend running into millions of dollars.
The IT strategies being adopted now are very different to traditional strategies and are actively geared to increasing control and providing a method for spreading corporate knowledge rapidly around the globe, whether now or in the future. It is still common to find different IT solutions in each business location, complete with different data structures, different methods for grouping aggregating risk, differing names for the same customer, etc. Global companies need to implement enterprise wide standards now, in order to prepare for future global access to their data.
The way that global data is reported is also on the move. Traditional reporting cycles are often driven by the head office deadline, with financial results from the national subsidiaries being fed up earlier and earlier, the further down the chain the sub-office in question is. There are accepted reporting times, often month end, quarter end, and so on. Something that happens on the first day of the month does not get noticed until the monthly report.
Until now, little if anything was done to spread information around organisations until these retrospective financial reports were produced. Even then the flow of information was often one way - subsidiary upwards. There is now much greater pressure to provide reports faster and more intelligently with, in some cases, less being reported but more frequently, with much more sophisticated selection criteria and with better direction. Perhaps the data needs to get to a particular individual rather than being included in a general report.
The concept is that of business events being reported as soon as they occur. As discussed above, the requirement is now often that that data be available in each global office as soon as it can be transmitted, and that includes reports of the nature of front-end data being captured. Systems now need to deliver information to specific people within the business, whichever office they are in at the time.
As well as increasing speed, direction and intelligence of reporting, there is a related drive towards consolidation and standardisation of data. Nowhere is this more apparent than in the area of customer relationship management.
It seems it is suddenly no longer acceptable for an organisation not to understand, at an enterprise level, its entire relationship with a particular assured. This is easier said than done, given that the relationship with any customer might well be through several subsidiaries in different countries, directly, as well as through several different brokers, and possibly via coverholders too. Add in a little confusion due to the fact that the subsidiaries and coverholders may well know the same assured by different names and the complexity of the problem becomes more apparent.
It is likely that any IT strategy being formulated will centre around the key components of improved speed and direction of output, together with more consolidated and standardised data. As a supplier of IT systems for insurers and reinsurers, Room Underwriting Systems Ltd has designed its current range of products with the above sentiments firmly in mind.
Marcus Broome is chairman of ROOM Underwriting Systems Ltd.