The efforts of the insurance industry to lower their transaction costs are beginning to have an effect. Holistic software platforms tailored to the needs of the insurance industry allow IT managers to achieve a high level of standardization in their processes. This, in turn, results in an increase of efficiency and a reduction of costs.
Current studies show that the transaction costs of European insurance companies are still high. As in the case of other sectors from the financial services area, the European insurance industry is increasingly under pressure to cut costs. Expansion strategies in new European markets, mergers and acquisitions, cut-throat competition together with new market positioning require a more-efficient IT architecture.
Due to their complex business models, however, the business processes of insurance companies have been operated using heterogeneous, inefficient and, therefore, costly IT systems. Complexity is considered to be a decisive cost factor and, at the same time, a barrier for standardization and industrialization. The five hurdles which are most frequently mentioned are:
- Wide product range
- Diverse product variants
- Heterogeneous processes
- Rigid "legacy systems"
- Decentralized decision mechanisms
The streamlining and efficient restructuring, in particular of the first of the four aforementioned points, hold the most potential for an insurance company to increase its productivity and its value chain. A transparent view of the process management and cost management enable the significant streamlining of the business events. These are advantages which can be passed on to the insurance clients and which strengthen a company's competitiveness.
The debate which arose on this matter with regard to costs, benefit and efficiency has, until now, only been moderately successful. According to a study from 2007 carried out by the Insurance Institute of the University of St. Gallen, insurance companies still predominantly rely on traditional measures and concepts to increase their efficiency.
Insurers who are active on the national market made efforts to increase their flexibility and optimize their costs; on the other hand, globally-active insurance companies increasingly implemented a reduction of their own processing depth in favor of an increasing automation and flexibility of their processing. At the same time, standardized, accelerated processes in the insurance company reduce the amount of errors and increase the level of service.
Zurich Financial Services (ZFS) has implemented an industrialization model at European level in order to combine the competition advantages which exist in individual countries into a single value process. The core of the model is the creation of a unified IT platform which combines the different business processes and basic transactions of all business units. In order to achieve the highest possible level of automation, emphasis was placed on the IT-controlled standardization of the defined operational processes of all business units. The result was a considerable reduction in complexity of the elementary business processes of ZFS. In this way and by means of a stringent industrialization model, it is possible to implement a high quality value chain at low cost and, at the same time, to control all activities and resources. This enables the realization of long-term competitive advantages.
The industrialization approach in the insurance industry goes much further than the classic outsourcing and reduction of a company's own processing depth and can be divided into five core segments:
- Standardization: Processes are defined and implemented in a uniform manner for all units of the value chain.
- Measurement using Indicators: All operational units are measured using the same performance indicators. They are consistent and are accepted and applied in the entire company.
- Consolidation: Similar activities are grouped in specific organizational units. This encourages specialization whilst maintaining efficiency.
- Integration: Configurable and open IT applications enable the interaction of different organizational units across a range of different processes.
- Sourcing: Companies concentrate on their core competencies and outsource certain (support) activities of the value chain to external specialists/sub-contractors.
The greatest automation potential of an insurance company lies in the operational and IT processes. In the value chain of an insurance company, this includes the following:
- Offer creation (point of sale)
- Policy administration/processing
- Claim settlement
The optimum standardization of these back-office processes present the specific challenges of industrialization. It is only possible to map elementary functional processes and IT processes in an integrated system environment after they have been examined and defined. This leads to a significant increase in the productivity of an insurance company. The connected high level of automation is the decisive performance feature of a holistic IT platform.
Proprietary systems, however, only provide limited support for the holistic industrialization ideas in the insurance industry. Software systems with their own application development require a high level of maintenance. They are not able to react adequately to the increasing dynamics of the markets and to fast-changing client behavior. Key phrases, such as "time to market", "lean production" or "multi-distribution channel" have no place in own developments which have grown over the years.
Releasable, modular standard applications which combine the entire value chain of an insurance company on one single IT platform, without the need to change medium , by means of an integrated process workflow provide the greatest potential for a consistent implementation of the industrialization approach.
The realization of a process-oriented process administration which is supported by standard software forms the essential base prerequisite for the disengagement from a traditional insurance manufacturer to becoming an "up-to-date insurance factory".
The mapping of the back-office functionalities alone, however, is no longer sufficient to stay abreast of the holistic automation ideas. The changing client behavior and the increasing outsourcing of the point of sale from conventional field staff to the world wide web has to be considered in IT strategies. Therefore, only a software solution for insurance companies which integrates both the back office and the front office into one application and which enables the entry and processing of relevant data at the time of creation in both channels can prevail on the market.
ALICE Insurance Factory