Flexibility and adaptability are the key words for the IT systems of the future which will help make (re)insurance businesses competitive, says Kevin Curtis.
“May you live in interesting times”. According to some sources, this is an ancient Chinese proverb; according to others, it is an ancient Chinese curse! But, like most of life's events, it is down to the perception of the person affected by living in interesting times. In this respect, organisations are no different from individuals, and certainly, the reinsurance industry has its own interpretation.
Much has been written recently about mergers, acquisitions, the shrinking reinsurance markets and the way in which reinsurers will have to adapt to maintain revenue and market share. I do not wish to reiterate these already well publicised views, except as evidence that the reinsurance world is, as ever, in a state of flux. A standard political, economic, social and technology (P.E.S.T. ) analysis of the macro environment will throw out a number of key, high impact, high uncertainty factors with which most of us are familiar, such as EMU, changing distribution channels, substitution of reinsurance through tradable securities, market consolidation and so on.
What is, however, far more interesting from the perspective of business development, and given that this page is an information technology commentary, is the rise and rise of IT as an essential component of strategic planning and, downstream, of organisational development. Competitive differentiation is rightly being pursued. The recent Monte Carlo 100 survey revealed that 61% of respondents believed reinsurance brokers to have a future, but by providing different services. Conversely, 56% felt that in the future reinsurers will do more business directly with their clients. Anomalous? Perhaps, but more likely a reflection of the desire to “do things better” and “to do things differently”.
As we enter the information age, strategic objectives that comprise the more intangible capabilities for the reinsurance sector become increasingly the norm. They would probably go something like this:
• Develop customer relationships that retain loyalty and serve new customers and market segments.
• Introduce innovative products and services with low-cost and short lead-times that are desired by the target customers.
• Stretch employees' skills to embrace new capabilities of quality, service and response time.
The traditional validation of IT, that of cost-benefit analysis, becomes redundant. It is no longer a matter of quantifying capital investment and its corollary of amortisation against fiscal benefit received from reduced labour costs; intangible benefits are extremely difficult to measure.1
How does information technology help us compete for the future? Flexibility and adaptability are the watchwords. Existing hierarchical computer systems that are inflexible and difficult to adapt or “stretch”, irrespective of their rich business function, will not fit today's new competitive model. Organisational development that is driven by reacting to client or market demands, deliberate positioning for future opportunity or by creative experimentation demands that the IT infrastructure be developed in a similar manner.
Make no mistake, this is not an IT strategy formed by shooting in the dark until something is hit. This is a deliberate and forward facing strategy of developing an IT infrastructure that can enable change, often at short notice and often involving significant changes in direction.
In order to function successfully, an organisation requires certain types of data to be accurately captured, stored and reproduced - what might be called core data. This feeds regulatory returns, offers a snapshot of revenue and liability, provides outstanding balances that can be aged and debtors that can be progressed. However, this is not the type of data needed for innovation, for future competition. Certainly, it can be made available to an integrated on line analytical processing (OLAP) application and enormous operational benefits can be gained by identifying and understanding patterns of activity, so helping to establish better trading relationships. All very commendable. However, it does not help us understand the future. After all, could analysis of the past have predicted the use of the internet as a distribution channel, or the use of bonds as a replacement for reinsurance?
What is needed is an IT infrastructure able to deal with “softer” data, data which help track market and competitor direction. The terms user empowerment and power users have come to the fore (not with me they haven't - ed.) Increasingly sophisticated and powerful applications are being delivered to the desktop to meet the needs of, and it has to be said, create the desire for, rapid development and delivery of IT function by knowledgeable business users. This soft data enables innovation and the creation of competitive edge through reacting quickly to opportunities.
Flexibility with control used to be an oxymoron, but by providing a single, integrated data repository and leveraging the ability to communicate seamlessly between applications on a common technology platform, it is possible to have flexibility with control. Is this nirvana? Not really, just the next generation of business solutions.
May you live in interesting times.
Kevin Curtis is product manager, PMSC, with main responsibility for the product management and business development of Re+, PMSC's custom designed solution for the reinsurance and captive markets. Tel: +44 (0) 171 860 1037; fax: +44 (0) 171 895 8585; email: firstname.lastname@example.org. For further reading, I recommended The Balanced Scorecard by R. Kaplan and D. Norton, HBS Press, 1996.