More than just cost savings will drive the London market to the internet.
Recently-released technology, combined with worldwide changes in law and regulation, offer extensive advantages to those who use the internet to process large-scale, business-critical communications. Far from being less secure than the physical form, these technologies can provide even greater security. Their proper use can reverse some of the negative and anti-social practices they tend to encourage, and free-up people's time.
Are these statements myth or reality? A reality check not only tells us that the foregoing scenario is correct, but also that the benefits can be even greater. We can maximise the advantages of new technologies by creating increased client or customer contact, and channelling resources into those parts of the business that create revenue.
To reap the benefits London needs to be a constant net investor in technology, continually rationalising and updating systems. Only by keeping up the momentum can the market maintain its unique competitive edge – one which some suggest it has already lost. Ironically, one real benefit that new communications technologies offer is the ability for the sector to put people back in touch with each other and strengthen client contact, because more resources can be focussed into the front office. The net overall cost-cutting approach is short-sighted: companies should seek to redeploy back-office savings into the parts of the business that build shareholder value.
Like any tool, technology can be misused, so that instead of freeing people it ties them to their desks. Insurance, particularly the wholesale market, has, to date, been better at managing this than some other sectors, but how many of us hear the arguments about commoditising the broker and keeping the underwriter in an electronic cage? Instead, arm your brokers with personal digital assistants and get them into the market. With the savings from a more efficient back office, how about increasing the marketing force, and spending more on keeping and generating business?
B2B exchanges and e-markets offer new distribution methods that cannot be ignored, but the threat that they will become the prime method of doing business is easily over-egged. Retail product can migrate relatively easily to these formats, and adapt to new ways of marketing and distribution, but the wholesale market has very different needs and demands. The threat (real or imagined) that e-business will come to dominate does not mean that the London market should ignore the potential benefits that electronic communication holds out. Indeed, London cannot afford to miss out on a real opportunity to win back its competitive edge over other markets.
The cost and time savings presented by electronic communications are substantial. However, hypothetically, London could opt to forgo those savings and still manage to remain in business. But they are not the sole factors influencing businesses' decisions to reduce paper and move more processes into the realm of the electronic. The other clear advantages of e-business could tip the balance for the London market.
The most important driver to the internet and related communication media is only just beginning to emerge. Legal and regulatory authorities, both national and international, are in the process of introducing legislation which encourages and supports electronic commerce. Regulators around the world are attempting to create rules tailored to electronic commerce in its entirety, and not just aimed at the internet. Recent major legislation can be found in the US, Australia, Japan and individual European countries. At the European Union level two important actions have been put in place, namely the Electronic Signatures Directive and the Electronic Commerce Directive.
These two directives form the basis of the general regulatory framework that has been specifically drafted to facilitate the use of electronic commerce within the EU and the European Economic Area (EEA). Elsewhere in the world, regulators are drafting, or in some cases have already passed, laws which give electronic documents the same legal force as applies to physical ones. In this respect, we have reached the point where serious contractual activity can be moved to electronic form via the internet.
Hardware and software is readily available to support such activity. Advanced applications to manage workflow are appearing, and can connect both to communication and data storage systems. Archiving and data storage is sufficiently sophisticated to allow business documents held in electronic storage media, and used with the correct messaging or delivery application, to achieve significant evidential weight.
The whole question of legal admissibility and, most pertinent, the legal and judicial weight that attaches to electronic documents, is dealt with by a code of practice published by the British Standards Institution in 1999, namely BSI-DISC PD 5000. The code includes BSI-DISC PD 0008, a standard for information stored electronically. PD 5000 has been published as a code of good practice by messaging authorities across the world, and PD 0008 is due to receive ISO standardisation.
Set aside the fact that electronic management and storage of information will change the entire methodology surrounding many current business processes, yielding significant savings. More important, these technologies can be shown to offer significant benefits that the physical form of information does not, including security, timeliness and compactness. Should a need arise to produce information in a future arbitration or legal proceeding, the type of communications application originally employed and the actual storage media will be critical.
For the insurance sector, the ability to store e-mail, attachments and other documents securely, together with full audit trails for evidential purpose, is essential to the industry's future well being. But the reality check once again reveals surprise benefits: paper-and-ink signatures can be forged, but electronic documents burnt onto a CD-ROM and supported by original and indisputable proof of delivery can be viewed as stronger proof than the paper form. It is myth that technology offers less security than physical documents; just the opposite is true. Used correctly, secure communication can provide high levels of authentication, verification and validation.
Digital IDs, Certification Authorities, Public-Key Infrastructure (PKI), Trusted Third Parties, Cryptography, Secure Data Storage... each is part of a holistic offering that makes secure communication reality. The array of devices available offers new ways of building channels to customers and suppliers alike, and can be used as a strategy complimentary to, and in support of, both direct and indirect sales activity.
Networks such as extranets and virtual private networks can be created without the need to set up inter-operability agreements and similar complex architectures. Yes, certain software and operating methods may need to be agreed and established in advance, but the actual construction of such networks doesn't need to be overly complex. Add security, and encryption if necessary, and you have a unique and private network with, for example, some of your prime buyers. Such initiatives are already gathering force in certain vertical markets. Insurance and adjacent markets such as logistics can directly and quickly benefit from properly established network links. Speed, geographical time differences and requirements for early confirmation of contract can all be resolved by greater and safe use of the internet to exchange data.
Analysts from International Data Commerce (IDC) predict that by the year 2005, e-mail messages may reach daily volumes of 26 billion. As businesses become fully aware of the positive advantages in moving into electronic commerce, this figure may expand significantly. IDC predicts that in Europe, B2B commerce may be worth $785bn by 2004, compared to $61bn in 2000. However, this is just 1% or 2% of the offline economy, suggesting a huge uplift potential.
Using the internet for contractual activity and other legally binding acts opens a huge vista for insurance worldwide. Billing via the internet, moving Electronic Data Interchange traffic onto the world wide web, and breaking away from closed-ended user groups and into communication across other user groups is here and available today from existing technology.
Secure messaging is the key element of either the message itself or the attachments a message may carry. The strength of the technology in support of secure e-mail can now be purchased at a realistic price for use by the smallest to the largest organisations. Critical to the proper use of e-mail are applications that supply high-level authentication, identification and integrity checks. Used on a direct basis (for example from one server to another server), such software provides dual audit trails and message session information, which is immediately stored with the original message and attachments. Cryptography is available in many forms, and it is not necessary to resort to large scale, expensive PKI solutions to encrypt data.
Secure communication and content confidentiality is a reality today, and estimates of the value of the secure document services market see it growing to $5.5bn by 2005. Which will be the early vertical markets to embrace this opportunity? Insurance is going to be up there with other sectors, such as healthcare, in which secure transmission, receipt, handling and eventual storage of electronic data will become a positive and crucial aid to business operation.
I trust all participants in the IUA's 15th International Seminar take full advantage of the extensive personal networking opportunities that this type of event presents. Remember that the mobile phones and laptops brought to Gleneagles have an important communications role to play, but only in support of, and complimentary to, the prime activity of building personal bridges for commercial advantage.