Seattle – Across all functional areas, C-level insurance executives are tasked more than ever with improving financial performance. And in spite of what appears to be an otherwise insurmountable undertaking, executives, if focused on a stepped approach, are up to the task.
So said Mark McLaughlin, director of strategy, IBM Insurance Global Team, who presented to a crowded room of insurance executives at the IASA 2008 Educational Conference and Business Show, held last week in Seattle.
In rolling out his company’s key industry imperatives for insurers to create a true “integrated insurance enterprise,” McLaughlin told attendees that as insurers compete with other industries for investment capital, insurance CxOs are held accountable to improve return on investment.
“Insurance CxOs have a basic set of actions that can impact insurer financial performance,” he said, “and these actions translate to value levers.”
Primary levers include increasing revenue by entering new geographic markets, offering new products and expanding business models, and reducing expenses by automating manual processes, consolidating functions and moving costs from fixed to variable.
Secondary levers include merger and acquisition activities, which enable carriers to expand into new markets, pursue economies of scale and build brand synergies. Business agility—the ability to adapt to regulatory change, leverage market shifts and react/attack competitors— also is important, according to McLaughlin, “and although business agility can drive an insurer’s performance, it’s hard to measure.” Risk and compliance are also seen as secondary levers, and include managing operational risk, market risk and anticipated insured risk changes.
“This leads us, based on our own customer research, to enabling levers,” McLaughlin said. Here is where the sea change takes place: A cultural transformation is required that drives acceptance of necessary changes, manages and attracts organizational skills and leverages collaboration across the enterprise.
“This is especially important if you plan to enter global markets,” McLaughlin continued, “because demographic and economic shifts will reward insurers who move into these new markets, and international competition will come here even if you don’t go over there.”
According to IBM’s 2007 Customer Survey, most insurers with global strategies are seeing 15% to 20% growth, largely as a result of specialization. “Companies tend to perform well in local markets and channels,” McLaughlin told attendees, “but there is plenty of research that says specialization matters.”
As part of his over-reaching discussion, McLaughlin pointed to the “steps” that C-level executives need to focus on to put those enabling levers into play, such as a focus on the middle ground between IT componentization and standardization. Balancing the cost savings and soft returns on standardization (such as a standard set of code) with the efficient use of a component business model, helps insurers define clear handoffs between business functions to localize IT decision-making.
“You need to know what areas should be componentized versus standardized,” he said, “because that’s the key to determining core market strategies and therefore improved performance.”
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