The landscape of distribution continues to change across Europe. New players enter the market in the form of aggregators, affinity groups and retailers. Brokers and agents still play a strong role in many countries in Europe. In the U.K., there is a growing trend for the direct channel to the consumer, especially in personal lines, which are becoming highly commoditized. The rise in the use of aggregators has been dramatic. All these channels require a cohesive strategy to ensure costs are contained and the appropriate risk is taken on the books.
One of the most notable changes in this year's European survey is the adoption of Web services and SOA. Web services and SOA are widely deployed, especially in front-office solutions. These technologies are past the research and pilot phase and have entered into production, where they are delivering value. Eighty-three percent of large European insurers have deployed these technologies in mission-critical production systems. Midsize insurers are not far behind in adoption, with 50 percent using Web services in mission-critical production systems.
Asia: Scaling for Growth
Two of the dominant markets in this region, India and China, face serious challenges in keeping up with the growing economies. Liberalization and the opening up of these economies have established an increasing interest for insurance among consumers. Such potential is good news for insurers; but these markets are set to experience scale requirements unseen elsewhere in the world.
In India, with a population of 1.2 billion and an expected middle class of almost half that, insurers will have to cope with volumes of data and transactions in core systems that have never been seen before. While growth is not as fast in China, insurers will face similar challenges there soon.
Small and midsize Asian insurance companies continue to focus on investment in hardware and communication facilities (such as wide area networks, Internet access, basic telephone facilities, etc.). Upgrading core solutions will be the next step. The question remains as to where to source these core systems. Solutions from Europe and America are deep in functionality but are unproven in scale for these markets. Build-versus-buy will continue to be a valid debate in the coming years.
Both India and China have incumbent monolithic insurers that are being challenged by small, innovative startups. Most of the new insurers have investment partners from established markets such as Europe or the U.S. that bring with them significant experience, product innovation, capital and IT resources for this new challenge. These startups will play an important role in defining how these previously closed markets grow in the coming years.
Elsewhere in the region, Japan's declining population translates to declining premiums. However, Japan's challenge for 2008 will be how to take advantage of the recent legislation allowing banks to sell the full range of insurance products. This model is well advanced in other regions, particularly in Europe.