Strategies for managing technology through the cycle

17/01/2011

As optimism floods back into the Asia Pacific region, the life insurance industry is gearing up for increased competition again. Darren Stevens, Global Head of Product – Wealth Management, Bravura Solutions, discusses what CIOs are saying in this new business environment and the IT strategies needed to support life insurers today and for the future.

IT for financial services is characterised by an ever changing landscape and cycling business trends; this has never been truer than over the last two years with the onset and recovery from the Global Financial Crisis (GFC). Within this time, a radical about-face in attitudes towards IT for life insurance has taken place.

“2008-2009 witnessed the most severe economic recession in generations, and the IT industry suffered an even greater decline than it did during 2001.” – Gartner, Gartner Perspective: IT Spending 2010.

As the GFC hit full-force, the first half of 2009 was a period of cutback for life insurers. IT spending, while maintained at similar levels, was refocused with attention turned from innovating and improving to sustaining and surviving.

Of 41 CIOs interviewed for Celent’s 2010 CIO Survey: Pressures, Priorities and Strategies, in terms of their IT operations in 2009, 54 percent said they were scaling back the cost of proposed projects, 32 percent said the scope of underway projects had reduced, and 10 percent said they had halted projects altogether.

However, in the second half of 2009, as optimism set in, life insurers began launching new products and looking to modernise and upgrade their IT systems.

In its report, Wealth Management and Business IT Priorities for 2010: A Global Perspective, Celent predicted that by the end of 2010, global expenditure on technology by the wealth management industry will hit US$3.7 billion – up 5 percent on 2009. In addition, the report predicted that projects put on hold through the GFC would resume in 2010.

According to the aforementioned Celent survey, the CIO view for insurance IT is more optimistic than cautious, and insurance organisations are willing to spend in targeted ways. Organisations have once again started to look at growth, rather than simply focusing on avoiding loss, with 80 percent of surveyed life/health insurers now placing ‘growing the business’ in the top three priorities for IT to address.

Increasing complexity in IT

In recent times the complexity of IT has increased for life insurers, with businesses contending with shorter and more dramatic business cycles. Many businesses continue to run multiple (usually disparate) legacy systems that struggle with the stress of keeping up with an increasingly fluid landscape.

Up to now businesses have coped by engaging the ‘quick fix’ – launching new products but growing and further ‘tangling’ their legacy IT platforms to do so. This has provided a stop-gap solution to launching new products in the short term, but is not addressing emergent changing business needs and has resulted in complex, bulky systems.

New emerging business needs

In order to remain competitive, life insurance organisations are accruing a new list of demands for their IT systems.

Celent’s Wealth Management and Business IT Priorities for 2010: A Global Perspective states that the wealth management industry is seeing an increasing focus on integration, with a trend towards working off a single underlying platform across the enterprise. Attempting to run multiple disparate systems is no longer an acceptable loss of efficiency.

Celent also asserts that reducing costs is a significant area of interest for the wealth management industry. Firms want to reduce the cost structure of delivering advice to clients and build low-cost distribution channels to allow for reduced personnel numbers and provide advisors with lead generation tools.

“Value creation, particularly of the type created by IT, is actually increasing in this environment for several reasons. First, the business will often turn to IT solutions to help reduce its own cost structure. Second, revenue pressures place a premium on delivering new features to retain current customers and grow market share.” – Gartner, Gartner Perspective: IT Spending 2010.

Life insurers are feeling the pressure to bring new products to market faster. At one time (not so long ago) 18 months was considered to be a reasonable time to market – the expectation is now an absolute maximum of six months.

The heat is on for IT vendors to refine and develop their technology to meet this demand, resulting in a renewed interest in technological innovation. Life insurers want increased efficiencies across the board and are turning to technology to achieve this.

A demand for increased operational efficiencies is also driving a focus on the development of Service Oriented Architecture (SOA), Real Time Processing (RTP), Straight Through Processing (STP) and online access. Anything less than immediacy in processing is fast being considered ‘out of date’.

Don’t just cope – get ahead

Attitudes towards IT are changing; life insurers are looking to technology to get ahead of the curve rather than merely ‘cope’ with changing business demands. In the past the limits of possibility were defined by the constraints present in IT systems – now IT systems are being developed to meet business requirements. The new school of thought says that IT should be viewed as a tool to help businesses innovate and grow, not as a problem or obstacle to growth.

Leading life insurance businesses are those that are integrators of ‘best of breed’ technology, and many businesses are now seeing the significant benefits to new approaches to technology.

The way of the future?

SOA is a ‘need to have’ going forward; remaining competitive and keeping up with business cycles means employing technology that allows businesses to ‘plug and play’ the functionality they need.

According to Celent’s Wealth Management and Business IT Priorities for 2010: A Global Perspective “Service-oriented architecture (SOA) will be an important area into the future as firms focus on open standards for communication. SOA enables firms to respond quickly to the changing demands of clients, distributors, and regulators.”

Flexible solutions that put the control and configuration in the hands of the insurer and remove reliance on IT vendors are representing the way of the future. These solutions have the power to drastically reduce time to market and significantly increase competitiveness, with the ability to configure new products in a matter of a month. This contrasts sharply with the complex, expensive and time consuming development required with legacy systems, where it could be up to a year before a new product would hit the market.

The Celent report also states that financial services firms are looking to create efficiencies at the front office – reducing the time and effort spent by advisors on administrative tasks so they can focus on providing advice. Technology can be used to provide these efficiencies. In order to free up advisor time and reduce the administrative burden, automation is the way forward.

What to look for in an IT vendor and life insurance system

Businesses should look for technology providers that place emphasis on working together with them to design their systems. It is time to bridge the gulf between technologists and business people; technology vendors need to be enablers of, not blockers to innovation.

Global financial software provider, Bravura Solutions Limited (Bravura) has geared its business towards empowering its customers and creating cutting-edge configurable solutions that allow the customer to refine the system to their business needs.

Bravura has recently launched its next generation life insurance software solution, Sonata. This new Java solution is database independent (running on Oracle, Sybase or SQL) and designed using SOA. It comprises built in workflow management that allows fast and simple changes to be made to workflow processes by merely changing a table or a workflow diagram.

Additionally, Sonata encompasses automated underwriting, which enables life insurers to auto-accept and auto-issue a large and increasing percent of new applications without manual underwriter intervention. These advances in technology are facilitating significant operational cost savings and benefits by automatically underwriting clean skin applications within minutes.

Sonata has been created to act as a tool for life insurers, rather than a limitation.

Life insurers should remember this when choosing a partner vendor and selecting an IT system; IT should work as part of overall business strategy – business strategy should not be formed around IT constraints.

About the author

Darren Stevens

Darren Stevens

Director, Product Management & Strategy

Darren Stevens is the Director, Product Management and Strategy for Bravura Solutions and is based in our Melbourne office. With more than 26 years of experience in the financial services and IT sectors, he combines his actuarial background and deep product knowledge with strategic thinking.

Darren’ responsibilities include further developing, refining and executing Bravura Solutions’ corporate strategy for both its Global Wealth Management and Global Transfer Agency divisions, the global strategic direction and product management of Bravura’s Wealth Management product suite and leading merger and acquisition activity.