Demand response pays off

CXO. How would you sum up how changes in the financial services industry in recent years have impacted the provision of insurance and pension products and services?

RB. Three of the main factors to have driven changes in recent years are regulation, availability of products and services and the fulfilment of service needs. Regulatory changes across the globe have resulted in greater transparency, initiatives like Treat the Customer Fairly and a greater thrust on financial and internal controls.

At the same time, traditional boundaries between various lines of business in the financial services industry are disappearing with products that meet financial needs as well as risk protection needs. The industry faces a visible pricing pressure due to rising competition. We also see greater emphasis on customisation of products and a greater thrust on fulfilment services and alternate channels as a differentiator.

DB. With today’s global perspective, it depends where in the world you are looking. For the UK (onshore) and Western Europe, the main influences on distribution, products, charges and costs have been regulation and consolidation. The market is generally much more competitive, with fewer providers, more information, greater product transparency, more investment choice and better-informed customers. This has been compounded by the demise of the direct sales force and increasing success of Bancassurance. The offshore UK business remains relatively unreformed in terms of high charges and unregulated salesmen.

For Eastern Europe, including Russia and the former soviet nations, there is still a need for older style non-profit/with-profit traditional products, interspersed with newer style unit-linked flexible whole life contracts. The direct sales force remains the predominant distribution channel. The rise of Personal Pension business is a major aspect of this marketplace.

For Asia-Pacific (ASPAC) and in particular India and China, there remains a bedrock of traditional protection/gratuity business. With the opening up of life insurance in these regions to foreign partnerships, unit-linked products are gaining ground rapidly, albeit against a background of fiscal and legislative control that reflects the previous era. Group Employee Benefits (both pensions and protection) are the coming growth area but, ironically, this tends to be an aspect of the industry with the weakest system support capability.

CXO. In what ways did existing, older systems become inappropriate and how did you adapt your own offerings accordingly?

RB. As competition among carriers intensified, distributors and customers demanded new products quickly that could be customised to cover specific risks and needs. Existing legacy systems were not flexible and could not help in rapid configuration of new products and business rule changes.

The first signs of movement away from legacy systems could be seen in web enablement of customer facing processes and customer interfaces. To compound the problem, shortage of skilled people for legacy systems created a ‘knowledge gap’ and transition problem for most insurers. We therefore focused on new technologies, legacy systems transformation, legacy integration, business process management and enterprise application services to help insurers in the marketplace. We have developed specific expertise in service oriented architecture and point of sale solutions.

DB. Embedded Insurance functionality remains appropriate but limited. Product innovation, however, creates the need for increased functionality delivered in an increasingly flexible way.

Expansion in investment choice, encompassing externally and internally managed funds, with different pricing structures and frequencies, puts strain on systems designed for a much less complex age. With the possible exception of the US, a system provider cannot operate in isolation from the rest of the world. The system has to support multi-company/multi-branch/multi-currency activities. It must facilitate a wide variety of distribution channels and interface with the many other internal and external systems and processes that make for a well-managed and successful business.

Most systems are surprisingly old in terms of their origin; 20-30 years is not uncommon. Although these old systems have been through major transformations (for different markets, and in particular for unit-linked products), nonetheless basic design decisions taken many years ago reflect the market and technical conditions of those times, and this imposes constraints in terms of the current environment.

This is why we chose to start again with a clean sheet of paper and build a modern system from the ground up without the technical and design legacies of the past, and with the emphasis firmly on enabling the business user.

CXO. What trends have you seen in the demand for your products and services in the past five years and what do you think has driven this?

RB. Insurers are now placing greater emphasis on business process changes coupled with business rules changes across distribution, policy and claims value chain. There is also a significant trend, increasingly with large insurers, towards centralisation and consolidation of applications infrastructure to get economies of integrated service capability.

Furthermore, increased competition is forcing the need to cross sell and mine existing customers leading to data warehouses, analytics and intelligent systems. Large European insurers outsourced business processes to low cost countries resulting in significant improvement in combined ratios along with improvements in quality of service. Clearly, focus on the customer and speed-to-market have been the major drivers. In addition, regulatory changes are prompting management to focus on financial and internal controls across global operations. Our role has changed to one of a strategic partner working with our customers on large-scale business transformation programmes, enterprise architecture consulting and implementation partnership.

DB. We would see regulation, consolidation and consumer awareness as the three major drivers of demand for our products and services. The first affect of these is that insurers are having to manage all aspects of risk and cost more actively. One area in particular that we see this is in the requirement for close integration between direct business and reinsurance activities.

Insurers are also now taking a much more holistic view of their entire value chain, with a focus on strategic relationships with major suppliers. Many small or niche type suppliers have been marginalised by this trend.

The second major trend arises from increased sophistication of customers, both financially and in terms of service level expectation. This has created a need for broader-based solutions, able to combine product flexibility with responsive service, which in turn has required broader-based suppliers able to offer an end-to-end solution.

Finally, the change drivers have had a third, and in our view, positive impact on demand. We now see a strong business orientation in the way insurers evaluate systems, in place of the more technical orientation of the past. There is real interest, now, in understanding how a system will support different business models, and a realisation that a system that meets current needs must also be flexible enough to address an uncertain future.

CXO. What should the core considerations be for an organisation looking to implement a new system – for example, does it come down to flexibility, scalability, ease of integration etc?

RB. First and foremost, it has to be tangible business benefits. Major successes in new system implementation have always been backed by strong business ownership aiming for quantifiable results. In addition, given the increased focus on the customer, flexibility in introducing new products, rapid configuration and business rule changes is key to new systems. In core processes like policy and claims management, integration with processes is critical. On the distribution side, scalability across multiple channels and integration with front-end systems and compliance with standards like ACORD XML are key considerations.

DB. Obviously one wants to maximise the benefit of past investment in systems but not at the expense of the business future. New systems present an opportunity to take stock and should be a catalyst for change. Integration is only one among many concerns. In a highly competitive, rapidly changing industry flexibility has to be the foremost consideration. In design, it must put intelligence in the data rather than encoding it within the system. It should empower the business user to develop new products and enhance the service to customers and keeps systems development off the critical path of corporate actions.

However, with flexibility comes the need for responsibility, in the form of audit and accounting integrity. The system selected must enable business creativity without loss of control – a fine line on which to balance.

System scalability and future proofing are also vital considerations, to accommodate business growth and technical change. Questions should be asked about the technical platform – the hardware, database and operating system deployment options.

Finally, there is the question of who is supplying and supporting the system. What are their insurance business and technical credentials? Will they still be there to support you in 10 or 15 years time?

CXO. With this in mind, how important is it to work closely with your customers and partners in ensuring you deliver the right service?

RB. Since tangible business benefits are top priority, a consultative approach with business partners is a minimum requirement. IT leaders are expected to create alternatives and help business leaders in making the right choices. At all stages, business must have at least two alternatives to choose from. In addition, the ability to see the big picture from a strategic perspective will enable IT leaders in coming up with integrated solutions and a phased approach to implementation. Communication across various levels, up and down and horizontally, is critical to manage stakeholder expectations and eliminate communication gaps.

DB. Both are of vital importance. The need for much broader-based, multi-disciplined system solutions necessitates a partnership approach. The partners should collectively command the in-depth domain knowledge and experience, technical competence, resource sufficiency and global reach to deliver best of breed solutions.

Partnerships reflect synergies and complimentary skills. Realising the benefits in terms of delivery to the customer, however, is not only a question of working closely together. Partnerships also require organisational maturity and a commitment to the longer term. When this meeting of minds between partners is allied with the appropriate complimentary skills, the results for the customer will be very good indeed.

Successful system implementations are not possible without complete cooperation between the Customer and the system provider. Both the customer and the provider should regard the implementation as the start of a long-term relationship. It is not something that they do to each other; it is something that they do together. The more involved with the system the customer becomes, the more value they will derive from it. This is particularly so with a modern system where changes are often implemented simply by altering a user-defined parameter.

CXO. What developments do you predict for this field in the next 5-10 years? How do you plan to adapt to these changes and stay ahead of the competition?

RB. Commercial insurance will see shorter cycle times driven by automation. Personal insurance is likely to be driven by global demographic patterns in highly populated and large economies like China and India. Globalisation and geographic reach may even result in distribution of operations across the world to take advantage of cheaper skills and full use of 24 hours. We will see a dramatic increase in number of customer touch points enabled by technologies like VoIP, e-signatures and wireless. Self-service applications will proliferate along with User Experience Management and carriers will increasingly look to Workflow and business rule engines. Competition will also lead to higher usage of predictive modelling to change insight to foresight. At Satyam, we are investing in new solutions and technologies. We will be a global solutions and services provider with deep industry knowledge creating reusable IP. We believe our expertise in distribution, the depth and breadth of services as well as high maturity levels create a strong entry barrier to potential competition.

DB. It seems likely that the trends towards regulation and consolidation in financial services will continue, with fewer but larger companies competing across a broad spectrum of the financial services market.

Consumers will increasingly look for solutions to specific financial issues from insurance providers, not just off the shelf savings and protection products. They will insist on seeing the performance and value added. In this world, it will become more difficult for insurers to differentiate their offerings and prove their worth.

The winners will be those creative and agile companies that can both identify a need and bring a solution to market quickly, but within a context of sound financial management.

We have positioned our systems and services with these core expectations in mind. Our response to the future is built firstly on systems designed to be extremely flexible and controlled by the business, but built on a solid bedrock of accounting and audit control. We have a highly scalable and mainstream technical platform, allowing the system to be deployed on anything from a PC to a mainframe, both now and for the long term. Lastly, we offer a powerful collaboration between ourselves, specialists in high-end design and development of core insurance solutions, and Siemens Information Systems Limited, with global capability in systems integration, web enablement and application support.

Ravi Bommakanti – Director & Senior Vice President, Satyam

As the Head of Satyam’s Insurance Business Unit, one of the largest Business Units at Satyam, Ravi has end-to-end responsibilities, entrusted with crafting strategies and developing competencies to spearhead the company towards leadership in the insurance vertical.

Ravi has developed the proprietary BASE™ methodology (Business Analysis for Solution Engineering) for analysing business processes and requirements to create reusable business models that help in making more informed, timely and high quality decisions in Business and Technology management of IT projects. He is a qualified Chartered Accountant with substantial experience in financial services, IT and business.

Derek Banks - Managing Director, LISS Systems

A founder member and Managing Director of LISS Systems, Derek has spent all his working life providing IT and Management Services to the Life Assurance Industry and the London Insurance Market from both an underwriting and broker perspective. He has been responsible for the introduction of significant application software packages (e.g. CAPS-I-L and LIFEfit) into the UK and European marketplace. He has held senior management positions within Life Assurance companies, Lloyds Broking firms and Application Software and Consultancy organisations operating in the Insurance vertical market.

Derek has played and continues to play a key role in the development of LISSIA. He is closely involved in the analysis, design and specification of major function for each new implementation of the system. He is also actively involved in the management and control of every LISSIA project.