Technological revolution in the reinsurance sector has had many false starts, but this time it is for real, and Asia is set to benefit, says Roger Foord.
Global brokers working outside London quite possibly do not see the technology generated within the London insurance market as the way forward for them, despite the market having been a major catalyst for past technological change. This is not to say that London has got it all wrong, or that its preference for face-to-face business is ever going to change, or indeed that London will necessarily be overtaken by the world's changes. But London is still struggling to get to grips with its desire to change its processes, and at the same time maintain the unique broker/underwriter relationships that exist in Lloyd's and the company market.
For the US market, London represents an expensive and inefficient system for transacting business, but this is not entirely true. The perceived sluggish processing of claims and payment of premiums has always been part of London's accepted practice. At the same time, other markets have not had London's benefits, including central accounting, policy checking, and its very personal way of agreeing the details of any new business or claim.
Players in the international market, including the bigger brokers and carriers who also function in London, at the moment have the opportunity to make some major moves using the latest new technologies. The largest global brokers have been in take-over mode for the past five years, and thus have found themselves with many systems to integrate before moving forward. But international software companies are finding it ever easier to supply solutions which allow many disparate IT platforms to merge, and to provide central data sources for the various predecessor companies' information. This by-passing of major systems rewrites allows the brokers to get on with their business, without the serious delays of the past.
Added to this is the advance of repository technology. All forms of media, from paper slips to video of a damaged hull, can be warehoused on a central storage system and made available over telecom links to management, clients and underwriters. This means that decision-making between business partners at opposite ends of the world has the potential to be of a higher quality. Presumably, it will also be quicker. In London, the desire for shared repositories is not that great, however, because brokers are still willing to carry files.
Nonetheless, the global use of repositories will revolutionise the volume and quality of information. Inevitably, one result will be the draining of some business away from London. However, the fear in London that the technological advances will have a dramatic effect is probably misplaced. Lloyd's own initiative for electronic trading, Project Blue Mountain, is probably not as well anticipated as the developers think.
The anticipated advance of technology in the re/insurance markets of the ASEAN countries was cut short by the downturn in the financial stability of the region. Many local companies were looking to move straight to the web and `e' solutions, and to avoid interim moves for the standard package solutions used in Europe and the US. However, improved conditions over the past 12 months are again encouraging companies in the region to gear up IT projects, especially in preparation for the increasingly competitive World Trade Organization (WTO) environment.
In several countries, such as Malaysia, the governments have forced local insurance companies to merge. This has resulted in the rationalisation of IT systems. Other areas of technological advancement are customer relationship management (CRM), call centres, business intelligence and data warehousing.
In Malaysia's case, the government is quite well advanced in its thinking on technology (the country was ahead of its time in 1997, when the Multi Media Super Corridor was set up to attract new technology companies to Kuala Lumpur). Yet the rest of the region remains hampered by the high costs of IT, global economic concerns, and political uncertainties. There are also still too many small players in the region, each competing for a piece of the same business.
One area where global markets might start to use technology to their own advantage is standards, but the implementation is only just beginning. Historically, reinsurance technology standards were electronic data interchange (EDI), developed in the London market through LIMNET. The management of global standards is now in the hands of ACORD. But the change which could dramatically affect the way business is transacted is the use of XML. It is a significant advance, and one which business decision-makers ought to take note of. The on-going development of XML standards will mean that brokers' and underwriters' systems will be able to `map' each others' data, and that machine-to-machine decisions can be made for all types and classes of business. A broker in America will be able to relate his data to any underwriter in the world, while still allowing each underwriter to have its own format.
This will also revolutionise payment methods between business partners, especially with clients. Combined with the increased desire to use electronically stored documents, and other digital information, change will inevitably take place for international reinsurance. This change will, of course, benefit Asia's insurers and reinsurers, just as it will those from around the world.
The life and death of `dot.com' is now well documented. But these new technologies are not fanciful. They work because they are easier to understand, quick to implement, and do not necessarily rely upon a complete change of business practices and relationships. They simply remove the mundane, repetitive activities which have always been a `way of life' in the insurance industry. The revolution is already well established in the thoughts of major reinsurance brokers and carriers.
By Roger Foord
Roger Foord heads the London market IT consultancy Roger Foord Associates.