The Role of IT for Business Enablement: An Asia/Pacific Insurance Executive Survey

PERSPECTIVE #FIN224974

L i -M ay Ch ew
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IN THIS PERSPECTIVE This IDC Financial Insights Perspective draws on the results of our insurance market survey carried out in August 2010 across 80 unique insurance organizations in Asia/Pacific. This document contains the findings and correlated implications from five core questions posed to regional insurance executives on their strategic areas of focus, IT spending directions, investment priorities, and plans for outsourcing specific to a range of business processes.
Survey Methodology

With the goal to feel the firsthand industry pulse regarding a couple of important strategic and technology-related questions, we polled delegates who attended our recent Asian Insurance Congress (AIC) 2010 with a quick onsite survey. This was further supplemented with a Web-based outreach, with potential non-Singapore-based respondents who did not attend the AIC invited by email to fill in a similar fivequestion survey. Note: The AIC is one of Asia's most influential gatherings of insurance practitioners, showcasing a comprehensive research-based agenda blended with technology innovations, business, and operational best practices. The 2010 event held on August 26 received overwhelming support, with in excess of 200 senior insurance executives and sponsors comprising CXOs, business-level heads, and senior managers in attendance. For more details, please refer to www.idc.com.sg/insurecongress/2010/. This survey was completed between late August and early September 2010, with consolidated findings based on responses from 128 individuals from 80 unique insurers across 12 regional countries. To avoid multiple responses from the same organization, we took the average weighted scores for each insurer to ensure that there was just one response per insurer per country.

September 2010, IDC Financial Insights #FIN224974 IDC Financial Insights: Asia/Pacific Insurance Advisory Service: Perspective

Demographics of Survey Respondents

The survey started by obtaining some background information on the respondents, namely the institution they represented (not revealed herein), the country of coverage, and their job title. Given that AIC 2010 was held in Singapore, as expected, in excess of half the respondents were based out of this island nation (see Figure 1). However, given that Singapore functions as the regional headquarters for most of the international insurers' operations for the ASEAN region, a reasonable percentage would also hold multiple-country responsibilities and would have provided feedback reflective of their regional coverage.

FIGURE 1
Respondents by Country

* Other Asia/Pacific countries include Australia (2 respondents), Brunei (2 respondents), India (1 respondent), Japan (2 respondents), Korea (1 respondent), and Sri Lanka (2 respondents), and 1 respondent with an Asia/Pacific regional coverage. Note: 128 respondents are from 80 unique organizations.
Source: Asian Insurance Congress 2010 Executive Survey

We also had a good mix of respondents belonging to different functional areas, mainly technology, operations, marketing and distribution, and compliance and risk, and a significant representation from the senior management levels with overarching business and operational mandates. As indicated in Figure 2, 53.9% of the respondents ranked as an associate director level and above, placing them in an excellent position to comment insightfully on their insurers' strategic and technological priorities.

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FIGURE 2
Respondents by Job Title

Note: 128 respondents are from 80 unique organizations.

Source: Asian Insurance Congress 2010 Executive Survey

Strategic Priorities

Our first query looked at the top strategic priority for regional insurers. Herein, the adage that "customer is king" continues to hold true, as clients increasingly demand individualized products, services, and pricing. As such, "customer-centric projects" ranked as the pole position with a score of 4.19/5, meaning that in the near to medium term, we would see strategically astute insurers continue to gravitate to product-plus-consumer focus and drive breakthrough efforts in customer-centric selling (see Figure 3). This would bear witness to insurers not only revisiting their repository of traditional insurance products but also expanding offerings to others like variable annuities type and investment-linked products, health insurance, and microinsurance in emerging populous nations like India, Indonesia, and Vietnam. These newer lines of businesses are poised to become new hotspots for carriers as they attempt to capture alternative customer segments and diversify revenue streams. (For an update on health and microinsurance in India, please refer to Business Strategy: Country Report Spotlighting the Indian Insurance Sector, IDC Financial Insights #FIN224856, September 2010.) The need to enhance customer engagements also has insurers banking on business analytics to refine customer experiences through more granular segmentation, differentiated customer service, and custom branding for specific market segments. For instance, progressive insurers in Asia in more mature nations like Australia, Hong Kong,
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and Singapore are exploring the use of high-technology interactive touch points including Web 2.0 applications such as social networking sites and blogs to promote products to the Generation Y clientele.

FIGURE 3
Importance Level of Insurer's Strategic Areas of Focus
Q. On a scale of 1 to 5, where 1 = not important and 5 = very important, please indicate which of these strategic areas your insurer is focused on in the near to medium term.

n = 80 unique organizations Note: There were 128 respondents from 80 insurers. Where there were multiple respondents from the same insurer, we took the average scoring for each category for that insurer, such that there is only one response per insurer per country (e.g., there were 9 respondents from AIA in Singapore, but their replies were averaged to generate one response from AIA in Singapore).
Source: Asian Insurance Congress 2010 Executive Survey

Next on the ranking scale is "compliance and risk management" global markets have grown increasingly entwined and riskier by the year, and insurers understand that being in the business of risk aversion, they need to astutely manage their personal risk profile. A focus on regulatory compliance, risk assessment, and risk mitigation would be reflected in risk-savvy insurers demonstrating proactive risk stewardship, conducting internal risk trainings, and making selective investments in fraud management systems.

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Rounding out the top 3 strategic focus areas is "the agency network" the traditional system of selling insurance through captive agents remains the predominant distribution channel for insurers across the Asia/Pacific region, and even more so for the developed nations where labor is relatively abundant and cheap and where policyholders still demand the familiarity and comfort of a face-to-face mode of interaction. Agents play an especially crucial role within the life insurance segment, where compared with the nonlife sector, products are relatively more complex, require a much larger financial commitment, lock customers in for a substantially longer time frame, and typically have greater client requirement for individual advice.
Change in Technology Spending

This section gives a quick indication of the annual change in technology spending for 2010 vis--vis 2009, while the subsequent sections indicate where these monies are being invested. As we emerge from the crisis, recovering spending budgets allow for insurers across Asia/Pacific to create a more dynamic business framework via the assistance of technology. Consequently, we see insurers' business goals being infused with an even more distinct technology flavor. Supporting that is the industry's rising technology spending. Figure 4 illustrates that 65 out of the 75 (or a whopping 86.7%) responding institutions anticipated an increment in IT spending for 2010, with the majority in this group projecting a 1020% increment. Nine institutions (12%) expected spending to remain flat, while only one lone respondent indicated a decrease in technology spending for 2010.

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FIGURE 4
Change in Insurer's IT Spending from 2009 to 2010
Q. My insurer will be increasing IT spending in 2010 (versus 2009) by:

Notes: Five organizations did not respond to this question. There were 123 respondents from 75 insurers. Where there were multiple respondents from the same insurer, and where there were different percentages given for the YoY increase in IT spending for that insurer, we took the most frequently recurring reply as the relevant response, or used the feedback from the most relevant (e.g., from the CTO or CIO)/senior respondent from that insurer.
Source: Asian Insurance Congress 2010 Executive Survey

Purchasing Decisions

As to where these funds are being channeled, Figure 5 illustrates that priorities are all rather closely ranked, an indication that insurers would love to invest in several IT solution areas at the same time, budgets permitting. However, the three areas that pull up in front are policy generation and administration; accounting, reporting, and compliance; and claims management, with scores of 3.683.82 out of 5. Policy generation and claims management are core solution areas and the lifeblood of any insurer, so these come as no surprise as funds need to be constantly invested to ensure that their core applications remain adaptive and proactive to changing environments. We believe that some of the respondents would also be making investments to overhaul their legacy IT systems that are not scalable to accommodate growth or consolidating disparate platforms built around product silos. Modernizing core applications would greatly improve

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process flexibility, support expansion and development, enable faster product rollout, and assist in the creation of a more customer-centric enterprise.

FIGURE 5
Importance Level of Investment for IT Solutions
Q. On a scale of 1 to 5, where 1 = not important and 5 = very important, please indicate the priority level of investment for the following IT solution areas:

n = 80 unique organizations Note: There were 128 respondents from 80 insurers. Where there were multiple respondents from the same insurer, we took the average scoring for each category for that insurer, such that there is only one response per insurer per country.
Source: Asian Insurance Congress 2010 Executive Survey

Increasingly, these core architectural solutions could also be Web based, given the need to create a flexible, dynamic, and more costeffective IT infrastructure. However, while these "alternative IT delivery models" such as cloud computing do have their advocates in developed nations such as Australia, they are largely still classified as "emerging" and have yet to see adoption accelerate among most insurers in Asia/Pacific (refer back to Figure 3, where alternative IT delivery models ranked at the bottom in terms of strategic initiatives).

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Outsourcing Arrangements

In two of our previously published documents, we wrote about Asian insurers' predisposition to internally design and develop their core insurance application solutions and their reasons for doing so (see InHousing: Are Insurers Predisposed to Internal Applications? IDC Financial Insights #FIN220586, October 2009, and Insurance Vendors: Spotlighting the Major Players in Asia/Pacific, IDC Financial Insights #FIN220327, October 2009). Consequently, we saw that within Asia/Pacific, insurance technology vendors' main competition stems not so much from fellow peers but from the insurers themselves as a high proportion of the carriers are developing, designing, enhancing, or maintaining their business applications inhouse rather than procuring from any technology firm. With that in mind, we were curious to see whether there has since been a mindset shift, and whether insurers have increased their level of business process outsourcing (BPO) the past 12 months perhaps to manage costs, refocus resources on developing the core businesses, access operational best practices not available in-house, and speed up implementations of revised business processes (see Figure 6).

FIGURE 6
Agreement Level That Insurer Increased Level of Outsourcing for Business Processes over the Past 12 Months
Q. For this statement: "My insurer has increased the level of outsourcing for business processes over the past 12 months" do you:

Notes: Four organizations did not respond to this question. There were 124 respondents from 76 insurers. Where there were multiple respondents from the same insurer, and where there were different replies given on the change in the level of BPO, we took the most frequently recurring reply as the relevant response, or used the feedback from the most relevant/senior respondent from that insurer.
Source: Asian Insurance Congress 2010 Executive Survey

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From our poll, we discovered that 36.8% of respondents were sitting neutrally on either side of the statement and have not seen outsourcing increase or decrease of late. Perhaps the recent increase in levels of geopolitical instability and the implied higher level of global offshore risk to business process fulfillment have resulted in some carriers taking a wait-and-see attitude when it comes to outsourcing of their processes. However, the eye-opener here is that an even more substantial 40.8% agreed/completely agreed that they have increased their level of outsourcing in recent times. It seems that insurers have started to explore a degree of outsourcing to the vendors, possibly driven by the need for increased organizational flexibility, and to reduce costs by contracting business functions to third-party service providers based in a more cost-competitive country. Here, we see proactive insurance technology vendors pumping in additional resources to focus on the insurance vertical and pushing ahead to forge relations with potential insurance clientele. Note: We likewise posed this same question to a group of regional bankers in a recent poll. Interestingly, a higher percentage (32.2% of bankers versus 22.4% of insurers) somewhat disagreed/completely disagreed that their level of BPO has increased the past year, while on the flip side, a smaller 21.4% of bankers (versus 40.8%; refer back to Figure 6) agreed/completely agreed that outsourcing has risen of late. This could be because insurers typically trail the banks in the amount and extent of outsourcing they already do, meaning that IT outsourcing by the insurance industry is still at a relatively lower base, with more likely to undertake outsourcing going forth (see Figure 7). Observing such an increase in outsourcing activities, our final question surveyed the 80 organizations on the areas that they have outsourced, or are likely to outsource. Forty-three, or more than half of these insurers, have outsourced or are looking to outsource printing, given that this is a peripheral activity. Herein, we can assume that several of these would also incorporate a digitalization and imaging component, with the insurers initiating the conversion of realms of paper documents (client information, proposals, etc.) into certified electronic originals. As customer bases continue to expand with rising insurance penetration rates, the resulting overflow of paperwork threatens to bog down operations. As such, automation makes perfect sense as it allows for immediate document access for all authorized personnel, regardless of time and user location. Going digital also eliminates paper bottlenecks and lowers paper and mailing costs, storage and distribution expenses, and all other associated costs.

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FIGURE 7
Business Processes Outsourced or Likely to Be Outsourced
Q. Areas that we have outsourced or are likely to outsource include.

n = 180 Notes: 180 responses are from 80 unique organizations. Some organizations have outsourced or are likely to outsource more than one of these areas. There were multiple respondents from the same insurer, with some respondents selecting a specific area as having been outsourced or likely to be outsourced, we took this as affirmative when 50% or more of the respondents picked this specific area, or used the feedback from the most relevant/senior respondent from that insurer.
Source: Asian Insurance Congress 2010 Executive Survey

Also seen as noncore, but perhaps less so, is the contact center, which ranked as the second most likely business process to be outsourced. Through call center outsourcing, some insurers are finding that they can better deliver optimal customer care and yet not sacrifice the financial and human resources necessary to host these tasks in-house. Call center outsourcing removes the need for insurers to pay and train dedicated staff to handle customer calls, with many turning to near/offshore call centers in the Philippines and India as a solution. Carriers hesitant to forgo complete control of their call center operations to a third-party vendor might be looking at a hybrid transitioning approach, where first-level calls are still handled in-house but calls of a marketing nature are fielded by outside operators. Meanwhile, 28 in 80 (or 35%) insurers we interviewed are also outsourcing policy administration systems, given easily available third-party expertise in this area. Most, if not all, insurance technology

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vendors provide IT support and maintenance for insurers' policy administration. These include functionalities such as policy issuance; change, reversal, and resetting of policies; administration of change options; accounting and taxation component; correspondence management; and fund management. LEARN MORE
Related Research

Business Strategy: Country Report Spotlighting the Indian Insurance Sector (IDC Financial Insights #FIN224856, September 2010) Business Strategy: Notes from the Singapore Insurance Roundtable (IDC Financial Insights #FIN224172, July 2010) Business Strategy: Enhanced Role of Analytics for the Financial Services Institution of Today (IDC Financial Insights #FIN223523, June 2010) Business Strategy: A Review of Insurance IT Executive 2009 Survey Results (IDC Financial Insights #FIN222001, February 2010) Asia/Pacific Insurance 2010 Top 10 Predictions: Prescriptions for the Upturn (IDC Financial Insights #FIN220980, December 2009) In-Housing: Are Insurers Predisposed to Internal Applications? (IDC Financial Insights #FIN220586, October 2009) Insurance Vendors: Spotlighting the Major Players in Asia/Pacific (IDC Financial Insights #FIN220327, October 2009) Best Practices: Singapore Insurance Update 2009 (IDC Financial Insights #FIN219548, August 2009) Asia/Pacific Insurance 2009 Top 10 Strategic Initiatives: Cost Concerns in the Wake of the Credit Crisis (IDC Financial Insights #FIN216488, February 2009) InsureTech 2008 Executive Survey (IDC Financial Insights #FIN214650, October 2008)

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