Recession: IT spending by insurance industry

HING KONG, CHINA: The insurance and financial services industry is at a crossroad. A volatile economic condition with recent financial crisis is changing competitive landscape in insurance industry with a challenging future ahead.

Technology initiatives undertaken by insurance companies will be affected by shrinking profit margins, saturated markets, and ongoing financial crisis. In addition to fulfilling ever-increasing business challenges like business process cycle time reduction, customer retention and increase in satisfaction, insurance companies are forced to reduce over all operational cost, personalise solutions, detection of fraudulent claims, enabling straight through processing by integrating customers, agents, brokers, third party service providers.

The global financial crisis lands an acute challenge on the table for insurers in Asia, as it is the only place in the world having room to maneuver for active economic policies. Increasing process efficiency will be the highest priority for insurance industry CIO’s.

The competitive pressures will also drive the need for innovation in Internet and mobile applications as well as the replacement of legacy applications. Underpinning these changes will continue to be a drive toward service-oriented architecture (SOA) for internal integration of systems, usage of services firms for transformation, and greater focus on process standardisation.

Siva Kumaran – group CEO, FirstApex, said, “Current economic conditions provide an opportunity for insurance companies to achieve sustainable cost reduction. While IT budgets may remain flat, technology must play a role in achieving greater profitability through core business operations.

This means underwriting for a profit, processing at the right unit costs per transaction, and pursuing smart and tactical growth opportunities, both organic and inorganic. The market will separate the winners from the losers: having the right cost structure will be critical to determining which side of the line individual insurers will end up on”.

Financial crisis has impeded the insurance industry but it is not facing a systemic crisis due to regulations and sound portfolio management by the majority of players. While the robust spending that was previously anticipated will not materialise, neither will dramatic budget cuts.

Insurers in growing markets like China and India will continue their IT investments, however insurers in matured markets like Hong Kong, Japan will have their spending priorities shifting away from discretionary projects, as greater emphasis is placed on achieving greater profitability through core business operations by minimising IT spending.

The life and annuities business may be harder hit than P&C, owing to diminished consumer confidence in financial services industries. Despite these difficulties, life insurers still badly need strategic IT capabilities that, if anything, more important under current conditions. In difficult market conditions, competitive position becomes even more important, and insurers need IT improvements in order to compete in speed-to-market and service levels.

IT spending will be a critical factor for insurers wishing to both take advantage of these opportunities and address the inevitably heightened compliance and risk management concerns raised by the financial crisis.

"Cutting IT spending is not a viable option. There is too much risk in not updating infrastructure" adds Siva Kumaran.

Nishant Johri, country manager-China, FirstApex, said that “life insurers may hold IT spending relatively steady, despite economic turmoil. Operational effectiveness issues and support for growth strategies, especially in high growth market like China, should have a stronger impact on IT planning of life insurers than concern about the investment markets or the economic crisis will”. FirstLife is a fifth generation Life Insurance Policy Administration System built on the Java platform."

"FirstLife addresses the current business needs of Life Insurers and offers the flexibility to be easily adapted in fast changing life Insurance landscape in Asia. A web based innovative solution like FirstLife can handle large policy volumes by easily addressing insurer’s key challenges like time-to-market new products, functional and technological flexibility, distribution challenges, scalability issues, regulatory reporting and governance requirements, agency management issues, enterprise-level risk management, data security issues, accessibility, etc.”

FirstApex; a provider of IT solutions for the insurance sector, launches policy administration system for life insurers – FirstLife recently. This was launched  during the 24th East Asian Insurance Congress 2008, being held in Hong Kong.