Can IT Insure?

Traditionally perceived to be a slow adopter of technology, the insurance
sector was until sometime back a decade behind in adoption of IT solutions when
compared to the banking sector. The reason could be the general conservative
nature of the insurance industry where old practices of conducting business were
considered to be adequate, says Ajay Bimbhet, managing director, Royal Sundaram
Alliance Insurance.

However, over the last few years, since deregulation in 2000, the Indian
insurance market has grown rapidly even while globally it has reached a stage of
maturity. The reasons for the growth are manyranging from opening up of the
sector in 2000 to rapid growth in population and finally to the realization that
we, as a nation, were under-insured, says Shailesh Agarwal, country manager,
Storage, IBM India/South Asia.

General insurance was almost exclusively in the public sector until 2000
where the usage of IT was limited to payroll processing. Following the
privatization of the industry, the segment is now seeing massive competition in
the industry and in order to sustain the growth, it has now become critical for
companies to adopt and respond to these changes in this competitive market.
Speed in deployment of products and strategies is the key to drive home the
advantages of innovation. Therefore, technology is considered to be an integral
part of strategic initiatives since it touches all facets of the organization,
right from product development to customer experience, says Anita Pai,
executive vice president, ICICI Prudential Life Insurance.

The Competition Factor

This can be put like this: competition is equal to need for cost
efficiencyis equal to need for technology. There has been a significant shift in
technology adoption over the last 4-5 years and prior to 2000, public sector
units were operating on a decentralized stand alone IT system. Post the
deregulation, with the entry of private players, companies were forced to set up
their basic systems and centralized IT systems came into practice.

Life Insurance Corporation of India (LIC) was reportedly the first player to
offer online service to policyholders and agents through computers in 1995. This
online service enabled policyholders to receive immediate policy status report,
prompt acceptance of their premium and get revival quotation and loan quotation
on demand.

Since the connectivity of systems across branch network was important,
systems were set up taking advantages of the evolving telecom infrastructure,
says Sanjiv Shah, head, IT, Birla Sun Life Insurance. Realizing the criticality
of inter-branch connectivity, LIC commissioned a metropolitan area network
connecting all seventy-four branches in Mumbai as early as 1997, enabling
policyholders in Mumbai to pay their premium or get their status report,
surrender value quotation, loan quotation, etc from any branch in the city.
Following the success of this network, such networks were also implemented in
other cities.

Some of the key drivers behind this change were the need to provide instant
service to their customers in an era of cut-throat competition, to introduce
paperless environment for reducing usage of paper which delayed processes, and
finally to deploy integrated MIS to run business more efficiently, says SS
Gopalarathnam, president, Operations, Cholamandalam MS General Insurance.

Increasing customer awareness and acceptance of life insurance as a key
element in ones financial planning have spurred the demand for high-level
service along with cutting-edge product development through customized
innovations. Hence, it is essential to drive greater efficiency through
automated business processes and to have compliance with new regulatory regimes
that have made IT strategies play a critical role in supporting business,
believes Pai.

The insurance industry has realized the need for adopting new technology as
an enabler for operational efficiency as well as a tool for improving
decision-making process. Every other insurance company is increasingly
deploying IT solutions to perform and enhance their business operations. The
success of these insurance IT systems is dependent on their competence to meet
the dynamic and evolving demands of this industry, says Bimbhet. For achieving
this level of efficiency, the systems must be capable of effectively supporting
new business requirements, building proficient administrative systems, and
optimizing their operational and functional costs since increasing competition
and declining margins have forced insurers to look for cost effectiveness.

Challenges Ahead

Admittedly, there has been an exponential growth in the Indian insurance
industry. But, this has resulted in generation of huge amounts of data, which
one needs to maintain over a considerable span of time. Companies need to
maintain live data for a very long time, unlike the banking or the telecom
sector. Here, while one needs to continually add new data every year, the old
data has also to be updated in terms of premium collection or policy renewal,
says Agarwal of IBM. He adds that forecasting the scalability of infrastructure
in line with growth requirements will be a major challenge for Indian insurance
companies apart from maintaining database at minimal cost over long-term.

Another major challenge is customer service. Therefore, it is imperative for
insurance companies to provide technology-based solutions for utmost customer
convenience. Technology must enable the support functions (like HR, finance,
process, etc) to run at speed with the core business (like operations,
investments, actuarial and claims, etc) units.

For instance, at ICICI Prudential Life, various technology-led service
solutions have been deployed including usage of mobile technologySMS pull and
push service, biometric FINO card for customer identification in rural areas,
annuity card for pensioners, interactive website, tie-up with e-Governance
initiatives to increase convenience to pay premiums. The company has also
deployed technology for gauging customer behavior wherein a dedicated Business
Intelligence unit provides analytical inputs to understand customer behavior
using statistical model.

A complex organization requires a strong Business Intelligence unit.
Business Intelligence, MIS, and corporate planning functions empower the senior
management to device strategies to accomplish objectives and IT empowers them
with the required information to support analytics and publish MIS, says Pai.

And, with the current focus on SOA, decoupling of business layer and process
layer would help businesses to identify and plan to migrate pain areas into the
latest technology while continuing with the legacy offering a better RoI and
quicker time-to-market.

Online Presence

With the advent of the Internet, online processes are gradually replacing
most of the conventional buying channels and this holds true for insurance
companies as well. With increasing Internet usage and its popularity among the
current generation, no company can ignore its potential in terms of sales and
branding. For instance, in the UK, more than half of the PI products are sold
online. Online presence offers insurance companies a pan India reach and real
time fulfillment thus optimizing Customer Life Time Value (CLTV), says Bimbhet.

LICs website, apart from displaying information about its policies, gives
convenience to its policyholders to pay premiums online (but one needs to
register for this service) free of cost.

ICICI Prudential also leverages technology to deliver accessibility through
online access to information. Over 55% of their monthly customer interactions
take place through self-help channels. Moreover, frequently used services like
premium payment and fund switch have been made more accessible through Web-based
systems. Pai adds that approximately 70% customers who switch funds use the
website to do the transaction online.

All other players like Aviva, Royal Sundaram, Cholamandalam, and HDFC
Standard Life Insurance use their online presence to service customers and
provide policy details. Insurance companies are already aggressively using
interactive voice response centers for marketing their products as well as
answering customer queries.

Which Way to Go?

As all insurance companies have a pan-India presence, companies need to have
systems with frameworks that are robust, scalable, and manageable. The
challenge for the industry is to have the ability to handle volumes and
establish reach, says Shah. Perhaps this is why there has been some movement in
terms of solution upgradation and replacements. But, at the same time, it is
important to keep the costs within acceptable limits in order to service
far-flung areas.

Recent trends have also shown a shift toward convergence in financial
services, in which captive channel entities sell investment products. This
convergence has driven insurance companies to assess and update their overall IT
strategies, so that they can provide sustainable competitive differentiation in
terms of speed, flexibility, and effective communication to their policy holders
and business partners.

The Road Ahead

Keeping in tune with the dynamic nature of the market, the life insurance
space will witness the introduction of newer and cutting edge technologies. The
role of IT will become more central and critical to any companys overall
operation and to the delivery of its key business strategies, says Pai.

Technology will continue to play an integral role in any company irrespective
of whether the company chooses to specialize in online services for customers or
branch selling. IT will cater to fully integrated solutions with servicing
capabilities across various lines including claims settlement, survey, risk
engineering, auto underwriting, etc, says Bimbhet. Insurance companies would
need to focus on core business of underwriting, and all other support functions
would eventually be outsourced with technologies providing necessary backup for
seamless delivering capabilities by integrating the best-of-breed service
providers who offer these services.

The future of technology is bright as the need for customer service will grow
strong, and secure ASP mechanisms will be the order of the day. And, with the
entry of new private companies, consumers will experience various technology
enabled service innovations that will meet their needs beyond life insurance.

Stuti Das

stutid@cybermedia.co.in