In today's global insurance market, comprised of large mature markets, some key developing markets, and some regions with unproven potential, there are only a few true "winning strategies." Rather, what characterizes successful companies is an ability to execute, based on significant investment in core, "baseline" activities such as claims management.
That analysis was offered by William Pieroni, general manager, IBM Global Insurance Industry, at last week's IBM Global Insurance Executive Conference, "Value Creation for Competitive Advantage," in San Francisco. Pieroni boiled the winning strategies down to just five approaches:
* Options Manager -- "companies that are very good at placing bets, such as AIG in China."
* Segment Dominator - "companies that penetrate a segment, for example USAA with military officers and enlisted personnel."
* Scale Player - very large organizations with a plethora of related offerings, such as MetLife.
* Diversified Offerer - companies that provide a variety of different financial products; "the value proposition is to be a single point of portfolio management."
* Price Competitors - companies such as Direct Line in the UK and Nationwide (for annuities) in the US, whose products are significantly lower priced.
If the ability to differentiate by strategy is limited, if not impossible, then what separates the winners from the also-rans? "The winners invest heavily in the baseline and change the bar," according to Pieroni. "Companies that were failing, according to our research, were under-invested in baseline." For example, offering a portal that allows consumers to get quotes is something that is no longer unique -- it has become a baseline offering.
In addition to strengthening baseline, there are several "no-regret moves," as Pieroni described them, that can help carriers become more competitive. One approach is "increased componentization and virtualization, to improve responsiveness -- for example, to deal with new regulations -- and to increase the resiliency and strength of the organization," he reported.
Also important is adoption of "more 'variable-ized' cost structures, and sourcing strategies with lower fixed costs," according to Pieroni. And, it is essential that insurers develop better customer, channel and competitive insights, he added. In fact, success was less about the amount of IT spending, or even spending on leading-edge technologies, and more about corporate cultures, motivated employees, and being a "thoughtful user of new technologies," he said. It all comes together in an organization's ability to achieve efficiency, differentiation and resiliency, he told the conference attendees.
These themes and challenges are being addressed, not just in insurance, by IBM's evolving on-demand strategy. Offering insights into what on-demand means for insurance was Ginni Rometty, managing partner, IBM Business Consulting Services. Rometty, who preceded Pieroni as head of insurance for IBM, also led the development of IBM's on-demand service offerings. "The watchword for the next five to 10 years will be productivity. Earnings will come from productivity improvements," she said.
Going forward, organizational productivity will depend on achieving "integration across businesses, to clients and partners," Rometty said. "It won't be one technology, there is no killer app. It will be a fusion of business and technology. That's what on demand is."
A key part of the message is that the insurance business is "deconstructing" into business components. These can include insight (e.g., customer analytics and campaign management); distribution (e.g., policyholder services and channel management); core insurance (e.g. policy administration, claims and underwriting); risk and financial management (e.g., treasury, fraud and trading oversight); and infrastructure (e.g., HR and procurement). A carrier must determine whether or not it can differentiate on any of those components, Rometty explained, adding, "if you are non-competitive, you then look for a partner or other ways to differentiate."
Another aspect of on-demand relates to the concept of horizontal integration, where not only core processes but also other related services may be linked together to provide a comprehensive offering. Finally, analytics and optimization "help you anticipate and shape what you do," rather than the more familiar "sense-and-respond" approach, according to Rometty. "This will fundamentally change the way finance works," she declared. "It has been about transaction-oriented decision making. But with analytics and optimization, you can outsource the payroll, and your finance organization will be able to focus on things like risk management and governance. That will be at the heart of productivity."
To realize the on-demand vision and avoid recreating the traditional "islands of automation," Rometty outlined a number of needs and imperatives: standards, enterprise data, governance of customer information, and resiliency.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio