The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2012

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As global markets become more interdependent insurance companies will increasingly need to change the way that they operate.

The great irony surrounding globalisation of the industry is that insurers will need to tackle a number of local business processes and regulations across many new markets.

The importance of modern IT systems cannot be underestimated in this respect. In particular, you'll need to have tried-and-tested solutions in place across three key areas: tax and technical ledgers; managing compliance across different geographies; and installing modern, flexible IT architecture that can support these activities on a global scale.

One size does not fit all
If you're currently operating across international boundaries, or planning to, you'll know that there are significant differences between the Lloyd's, the companies and the non-bureau markets in terms of how financial payments within your cash and technical ledgers need to be handled. If you're operating in both London and Bermuda, for example, you'll need to ensure that your IT systems are able to handle the contrasting rules in each of these markets.

In addition, you'll need to have a strategy in place to harmonise the way in which these payments are processed, so that all of the necessary checks and reviews are performed correctly, depending on the origin of the payment. To achieve this goal, however, it will be essential for you to define the exact point that a policy is considered "bound", when the payments are booked to the ledger and how any cash is received and allocated. You will then need to determine how this process will differ for payments coming from Lloyd's and the companies and non-bureau markets.

To make this situation even more complex, you'll also need to deal with different tax regulations across each of these locations and the different ways in which data is provided and/or needs to be captured. Unfortunately, with so many variables to consider, the whole situation can become complicated very quickly.

As a result, this is often the point where problems really begin, as individual offices attempt to resolve their own particular issues. Standalone systems and error-prone manual methods like spreadsheets that reside outside the main IT system can cause major problems in this regard. For example, you may end up with a number of different silo systems that need to be maintained separately or via double entry through spreadsheets, which means that the business is no longer able to obtain a single view of its cash position via one system.

Different currencies need to be considered here too. Although a premium might originate in one country, it may end up being processed in another. As such, even if you normally work with a "base currency" that is linked to the country/location where you receive and account for the premiums, you'll also need to be able to process claims and allow for currency fluctuations in the countries where the claims are being processed.

Faced with challenges like these, the ability to understand how your different global markets operate will be essential in order to ensure your IT systems provide a complete version of the truth in a timely and efficient manner.

Crossing borders
Regulatory compliance remains a key challenge for all insurers, but especially those that operate on a global scale. Already, the interdependence between the London market and other geographies has increased considerably. This means that successful global trading requires all participants to adhere to broadly similar standards, wherever they are domiciled. Technology will continue to play a key role in enabling these cross-border interactions and transactions as well as other forms of collaboration, since reliable data will need to flow between many different constituencies.

Just look at the work being done to prepare for Solvency II, for example. Insurance companies must now be able to prove that their data is reliable, controlled and accurate and that strict financial reporting practices are being introduced to improve internal risk management. Your IT systems will therefore need be to capable of addressing these key areas, including data management, reporting, and security, and must also be able to bring all of these disparate processes and functions together.

Already, Bermuda has opted for its own Solvency II equivalent, even though there is no legal or regulatory compulsion for it to do so. The London market has also demonstrated huge progress in meeting Solvency II requirements with the support of technology. Modern IT systems are certainly helping sophisticated markets, like London and Bermuda, make global trading safer and more efficient.

Furthermore, insurers will also need to consider using the latest technology in order to enter fast-growing new markets in the Far East that are highly receptive to new technology. These emerging markets are likely to offer another important opportunity for firms with an effective technology platform.

When viewed in this way, expenditure on your compliance projects can bring a number of additional benefits to the business. As such, a strong focus on the IT systems that support these projects should be seen as an investment in your globalisation efforts, since any work undertaken in this area will make your business a more attractive international partner for other market participants.

Leaner and meaner
Click to enlarge If you're thinking about modernising your IT systems to support globalisation efforts, you should be thinking about how the latest platforms and solutions can be used to support and improve your firm's business processes. Any new IT solutions that you choose should therefore act as a business enabler and not as a set of handcuffs that dictate how you operate your business.

Fortunately, the latest IT architectures can now deliver an extraordinary amount of flexibility. For example, many of the latest web portals for brokers have been developed using the Microsoft.NET framework, which enables easier localisation.

Migrating your existing IT services to "the cloud" may also be an option to consider, for an easy way of creating a central repository for your most important data and business assets. At the same time, the cloud computing model will also provide you with greater flexibility and scalability, so that you're better able to handle any peaks in demand, regardless of where and when they occur.

Unified communications is another powerful tool to consider as part of your globalisation strategy. Voice, data and video communication tools including SharePoint, instant messaging and video conferencing can help global workforces to collaborate much more effectively by creating a seamless virtual work environment across different geographies.

Forward-thinking insurers are beginning to realise the value of lean IT "platforms" such as these as an important part of their globalisation strategy, and as a much better alternative to rigid outdated "systems".

Flexible tools like these can help to eliminate the problems that have dogged insurers for years such as the need to re-key important data, integration problems caused by too many disparate systems, the errors associated with manual data entry... the list goes on.

Expertise on both the IT and insurance industries will be essential in order to make the most of these opportunities, which means it is vitally important to select the right technology partner to plan, implement and support IT solutions according to your specific needs. By carefully planning your strategy, you'll be able to use the latest IT platforms to significantly improve your global trading capabilities and stay one step ahead of the competition.

Rob Stavrou is director of consultancy at IT consultancy and solutions provider Northdoor