The insurance industry’s global expansion continues. Carriers are seeking new business opportunities in Asia, some companies are consolidating the positions they took in US and European mergers and acquisitions over the last decade, and companies around the world are continuing to refine their reinsurance positions.

“Insurance has historically been global in nature through the reinsurance and specialty lines markets,” said Dennis Maroney, managing director, insurance, for Microsoft’s worldwide financial services group. “That has always encouraged the industry to think globally about the exposures it faces.”

Moving outside home markets presents technological and business challenges, such as how to support business expansion quickly and cost effectively. Some insurance technology vendors are beginning to offer their applications for claims, underwriting, and policy administration on a global basis. Meanwhile North American markets are continuing to improve their electronic links to the London, Bermuda and European reinsurance markets.

“As companies expand their scope of operations geographically,” said Maroney, “they are increasingly looking to standards-based technology to automate their end-to-end business processes, from point of sale through reinsurance. Increasingly firms want technology that will support the entire business process, offer speed and agility, and provide them with the needed business intelligence to support an increasingly diverse customer base. Microsoft has responded to these business requirements by working with partners who have developed readily-integrated, standards-based solutions as part of the Insurance Value Chain.”

Go East and South

“North American insurers are pursuing global expansion at a pace matching that of European insurers’ entry into US markets in the early 1990s,” reported Cynthia Saccocia in a TowerGroup ViewPoint whose title, “Go West, or it is East?” makes a play on Horace Greeley’s 19th century advice. “Favorable economic conditions, demographic trends, and the gradual dissolution of institutional barriers indicate that high growth is possible,” Saccocia reported. The middle class that is developing in Asian countries is providing a target for sale of insurance products, and an audience eager for financial advice and retirement planning, the report explained.

But it’s not just in the Asian markets that analysts are noting this trend. Brazil is also a growing insurance market, and it’s now beginning to have substantial property exposures as well.

“These are new opportunities, and carriers aren’t inheriting a lot of legacy challenges, so they are taking a fresh look at how to build infrastructures that can grow. People coming in are not carrying the bias of the way it was done before, but they are looking at how it could be done in the future,” said Ken Parrish, Microsoft’s APAC insurance solutions strategist. He expects applications to take advantage of service oriented architecture and components.

In Saccocia’s account, the most successful North American companies are Manulife Financial of Toronto, which has operations across Asia; Sun Life Financial, also of Toronto, with operations in China; and Hartford Life, which competes in Japan with the Citigroup-Mitsui-Sumitomo Insurance joint venture.

For solution providers, China offers great opportunities, said Denise Garth, vice president, membership and development, ACORD, because it is not burdened by a large legacy of old systems. Much of the existing work is still done by hand, but the industry is growing very fast and the senior executives at many carriers are young and technologically sophisticated.

As in many other countries around the world, technology adoption is being encouraged by regulators. The China Insurance Regulatory Commission (CIRC) has worked with the Insurance Accounting & Systems Association (IASA) to identify best practice for the country’s insurance industry.

“Manulife was able to respond to new changes in the Japanese market – including new products and new distribution channels – because they were able to bring expertise from the US and Canadian markets, along with the technologies they used,” said Garth. Because Manulife was running three-tier operations (user interface, application, and data) it could make changes in just the user front-end to Japanese characters.

ACORD is also working with outsourcing companies in India. Many of the insurance carriers that are contracting with Indian firms need the work done in compliance with ACORD XML standards, Garth said.

To turn a favorite business cliché on its head, every opportunity also presents a problem. The flip side of a huge potential market is that insurance companies should expect to see slow development of business over a broad area, and this type of growth can be hard to figure out how to support. How does a firm support the business with technology? Does it make sense to invest in a data center and a call center to support business that doesn’t exist yet?

Cautious Investing

An alternative to building new centers is to undertake server consolidation and expand the capacity of existing centers. That way, the company can run business processes for one territory of a company from an existing center in another country.

Saccocia said that technology savvy companies such as CSC, Kanbay, Accenture, EDS, and CGI have large data facilities throughout Asia that can support a carrier’s foray into new markets. Insurers need to determine what core processing they can maintain in a hub while offering direct support to their agents. North American carriers could learn from the Europeans who came into the US market and sometimes overpaid for acquisitions. Some of the European insurers, said Saccocia, have failed to break even because their cost of operations has been too high and they haven’t been able to gather assets fast enough to support their overhead.

ING, said Donald Light, an insurance analyst at Celent, has come in and done multiple acquisitions well. “ING has been better at rationalizing; if you do multiple acquisitions you need to combine operations, technologies and technical staff to get a good return.”

Light also cited AXA as a company that got its pricing right when it acquired Equitable. In AXA’s case, the company formed AXA Technology Services in 2002 to provide a common infrastructure in the top seven countries where it operates – France, the US, Germany, England, Belgium, Japan and Australia. Plans are for the technology services unit to expand into other countries where it conducts business.

AXA Technology Services operates as its own company, with its own CEO and 2,500 employees, said Didier Ache, engagement manager for Microsoft’s financial services group. The group has developed an IT strategy and set key initiatives, including standardizing the firm’s desktop on Windows XP, using Microsoft Active Directory, and selecting Microsoft Exchange for email. In the back office it has driven server consolidation, not only on Windows servers but also on mainframes and UNIX. In addition to developing and implementing an IT strategy, the group has implemented a centralized procurement system, which has led to significant savings in hardware and software purchases.

“Their goals are cost control, high quality of service, and innovation,” added Ache. What it means internationally is that the US-based server farm can support operations in other parts of the global AXA operation.

AXA has worked closely with Microsoft to improve business processes and reduce costs. It is using Microsoft Virtual Server 2005 to cut costs in its global data centers through faster server provisioning and reduced server management costs. For AXA Technology Services, Virtual Server allowed it to move applications that were running on Windows NT Server 4.0 to newer hardware and to newer versions of the Windows operating system. The company expects up to 30 percent savings in server provisioning, management, and support.

Moving the Windows NT applications to Windows Server 2003 will also improve the reliability and security of the servers.

“We expect the reliability and availability of older Windows NT hosted applications to increase by 30 percent when we move them to Windows Server 2003,” said Kenneth Torricella, director of Windows systems solutions at AXA Technology Services. “That's a hugely important gain for a financial services firm.”

Windows Server 2003 security enhancements will also help AXA strengthen its data center security profile. “The much higher levels of security in Windows Server 2003 will present fewer opportunities for hacking, giving us a far more airtight technology environment,” Torricella said.