The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2012

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The insurance market is facing a number of important challenges: a steady flow of new regulations, the need to manage a wide variety of risks effectively and a weak economy that's causing budgets to be tightened across the board.

Without a doubt, modern IT systems can help firms to address many of these issues by delivering greater flexibility and efficiency and by providing a business with the robust platform that's needed to cement and improve existing customer relationships and develop new revenue streams.

However, regardless of how powerful these solutions are, the insurance industry remains an extremely dynamic market and the IT systems that you'll need to address your goals right now may not be the best choice when it comes to future growth and development. The legacy of outdated systems still plagues the industry from top to bottom, and it's important that insurance companies do not repeat the mistakes of the past when investing in new technology.

As such, when deciding on your IT strategy, you'll need to consider where you'd like your firm to be in several years' time, so that you can identify what resources you'll need to achieve these goals and then plan accordingly.

Sharing risk

Firms need to be able to adapt their IT strategies and capabilities quickly and easily in order to stay competitive in such a fast-moving and highly competitive market. Choosing the right systems and delivery models will be critical in this regard. But it's not just about what companies need to do. The IT industry needs to do its part to enable clients to meet their strategic objectives, by offering a more collaborative way of working.

At Northdoor, we're committing to sharing our proprietary intellectual property (IP) on new projects with clients. This new operating model, centred on "shared IP", allows insurance companies and IT solution providers to co-own the intellectual property that underpins the client firm's new IT systems. Click to enlarge

As a result, insurers and IT solution providers alike are able to share the risk, resources and ownership of an IT solution that is developed in a true working partnership. For obvious reasons, this approach offers firms a much more flexible and open alternative to the traditional licensing model, since it allows them to collaborate with the solution provider on both the design and overall direction of the IT system.

This level of flexibility takes the concept of "future-proofed" IT to a whole new level. By working alongside your solution provider to develop a totally tailored, fully customisable solution, you'll benefit from an open, modular system that's created using standard languages and platforms, and which can therefore be integrated easily with any existing systems and tools.

As a result, any further development and customisation that you'd like to undertake in the future will be totally in your hands. This level of autonomy will make it much easier to gain a competitive advantage, as you'll be able to modify your IT system to meet specific requirements and/or to perform certain functions easily, and therefore stay one step ahead of the competition as market demands change.

Another key benefit of this model is that it will give you complete control over your IT systems - even if you don't want to commit to a service contract with the solution provider afterwards. After all, when you buy a house, you don't have to use the people who built it originally if you want to add a conservatory or provide housekeeping - so why should your IT be any different? The shared IP model gives you the option to split the IT solutions and service contracts into two camps, so that you have the flexibility to choose exactly who you work with for what and when.

Your flexible friend

The idea of shared ownership is a really exciting aspect of the shared IP model. Unlike traditional licensing agreements - which cost you more every time you expand the user base and yet provide little room for modification - shared IP will give you the flexibility to change your system and sourcing arrangements according to your business needs, market conditions and the changing IT landscape.

In order to begin this process, however, companies will need to think carefully about their short, medium and long-term business objectives. While IT can certainly help firms to reduce their overheads by boosting efficiency, the shared IP model can also help to increase revenues by providing the agility and flexibility needed to support a strategy of active growth.

Also, because a shared IP approach will give you the ability to customise your IT solution in-house, you'll be able to innovate much more easily, as you'll be freed from the constraints of "one size fits all" off-the-shelf products that have been pre-built on a "one to many" model. Instead, when developing a shared IP system, you'll be able to work with your provider to make sure that the design of your IT systems is tightly linked with both your current and future business objectives and that it has the built-in flexibility to accommodate any unforeseen market changes.

This close working relationship with your IT provider will deliver important benefits, since it will allow you to form a genuine partnership. These relationships will not only help both organisations to understand one another's strengths and priorities, but will also enhance communication at different levels, including strategic, operational and day-to-day account management matters. By building a mutually understanding and supportive relationship within this collaborative, shared IP model, you'll also be able to raise any concerns and potential conflicts more quickly and ensure that they are resolved more easily.

Scaling new heights

Another major benefit of the shared IP model is that you can be sure that the provider has a very strong focus on solution design and development as well as customer satisfaction, as it won't have the option of simply sitting back and waiting for incremental licensing revenues to roll in. Instead, in order to make the shared IP model work, it will be imperative for providers to demonstrate the value of the IT solution and system as well as high quality service.

For all of these reasons, a global specialty insurer recently opted for a shared IP solution with Northdoor to replace its legacy administration system, as the firm needed to accommodate a number of different business requirements demanded by the Lloyd's, companies and non-bureau markets.

By choosing to develop this new administration solution using a shared IP model, the client will benefit from a highly scalable and flexible platform that integrates seamlessly with its existing IT infrastructure. At the same time, this solution will also help this firm to enhance its data quality and accuracy, while also reducing administration time across its underwriting business in both the UK and abroad.

Even with all these benefits, most firms have rarely, if ever, encountered this shared IP model, as it's still quite new to the market. This type of open, benefit-sharing relationship is quickly gaining momentum with more forward-looking insurance firms, however, as the collaborative model will free them up to focus on growth. It also reduces or removes the traditional limitations associated with having to adapt, resource and fund large-scale IT projects in order to address your changing needs over time.

By choosing a solution provider that is willing to provide shared IP solutions, firms will benefit from a return on investment that can only be made possible by the unprecedented control, flexibility and transparency that this exciting new model provides.

Rob Stavrou is director of Consultancy at Northdoor