Information technology
driving finance reforms
As more banks provide insurance services, traditional insurers
prepare for the competition by forming strategic alliances with
finance houses. As a result, insurance services are now routinely
bundled with credit card and loan servies
by Gerry Brooks, Executive Director- Trinidad and Tobago Insurance Limited (Tatil)
The financial services sector has been undergoing sweeping and fundamental change. A tidal wave of new legislation has rapidly transformed the sector, while the forces of liberalization and privatization have irreversibly changed the local insurance industry. With globalization and foreign competition, attractive multimillion dollar accounts have been lost to overseas direct foreign insurers.
Simultaneously, Trinidad and Tobago's only local reinsurer,
has changed form to become a direct insurer. Unfortunately, the
company lost TT$5 million in 1995. Moreover, substitutes and potential
new entrants abound while Bancassurance is a reality. In an already
overcrowded general insurance sector of approximately 24 companies,
Trinidad's industry gross written premium for 1995 is expected
to decline by 5 percent. Greater competition has intensified the
fight for market share and is forcing down prices.
These factors will reduce 1995 industry profitability by conservatively 25 percent. Last year's after tax industry profitability of the 12 major non- life insurers was collectively TT$62.6 million. Not much when compared to the after tax profits of just one of Trinidad and Tobago's banks. As if there were not enough challenges ... enter technology!
The new information age has ushered in fundamental changes in the way we work, service, communicate with and market to clients. Digital switching, low earth orbiting satellites, fibreoptic cables and broadband communications signal the arrival of the new information age. The convergence of voice, data, image, music and video will revolutionise the financial services sector far more quickly and profoundly than the industrial revolution of the 19th century. Indeed, it is said that the rate of information creation in our global village is 200,000 times faster than the growth of human population. The insurance industry must hop aboard or risk becoming a financial dinosaur.
Interactive technologies and applications are creating a virtual market place which operates alongside the traditional market place. Already, technology with video conferencing facilities, virtual reality and computer screens that respond to touch are in active use in the USA. Companies like Natwest, and Platt Insurance Brokers are establishing a network of kiosks at company branches to allow customers to obtain information and purchase insurance products directly.
Multimedia allows people to talk to a system and ask all of the questions they wish. Subsequently, clients may speak with a representative via the kiosk video phone or in person. Colonnade Insurance Brokers in the US have used kiosks in supermarkets, petrol stations and shopping malls, combining video phones with human presence. Many more foreign insurers are beginning to take their first tentative steps towards adopting multimedia and virtual reality.
Approximately 3 million people log onto the Internet for the first time each month. It is estimated that the amount of information winging its way between computers on the Net, increases by 10% monthly. In 1994, only ten US insurance companies had pages on the Net. As at March, 1996, over 80 US companies hosted web sites, supplemented by 40 additional companies internationally. Many sites appear in multiple languages. In an effort to reach the potential market of 40 million people, large companies have introduced multiple sites.
AIG and the Signature Group have begun direct sales on the Net. Home Pages which began offering only information, are now adding increasing levels of interactivity. This includes on- line proposals and on- line policies. There is also growing internationalization of the Internet with Mexican, French and UK insurers on the World Wide Web. Locally, two major banks and several insurance companies have established Web sites. More than ever, companies seeking to protect their domestic accounts and increasingly win attractive overseas business, must shift paradigms.
The "new testament" in the insurance industry is Electronic Commerce. Companies must now compete in the market place and in the market space. The old notions of distance and remoteness are rapidly being eliminated. Companies must be in continuous "hightech touch" with their customers. Twenty- four- hour, one- stop- shop service, if you please, with the ability to stimulate and respond to enquiries through on- line systems. This, with a view to generating increased new business enquiries, improving business retention and responding immediately to customer problems. The industry must position itself to be a player in the new global information community or risk becoming technologically and economically irreverent.
In 1995 and 1996 the Pink Mealybug wreaked havoc with regional flora and agricultural produce. Thousands of plants, flowers and produce had to be slashed and burned, as the bug infested gardens, farms and the wider community. Remedial work is still ongoing to contain and reverse the damage. Similarly, its counterpart the millennium bug has the potential to wreak similar destruction in our increasingly computer reliant society.
Unfortunately, many insurance company systems are not programmed to recognize the change in centuries. This, particularly in the case of software written in the 1980's, when programmers conserved space and memory by using our current standard for dates, mm/dd/yy/ and a two digit number representing the year. Consequently, all policy documents will be interpreted as having been issued in the year 1900! If not corrected, this will lead to confusion in underwriting, sales, accounting, marketing, policy owner services and other departments.
US experts speculate that correcting this problem could cost a large corporation from US$5 to US$40 million. Approximately $600 million, conservatively, is required to remedy the problem, with fewer than 1000 working days remaining until the beginning of the 21st century. Locally, the cost to the industry may well exceed TT$15 Million with time being of the essence.
Over the last decade, the insurance industry has committed in excess of TT$60 million to capital investment on information systems. All, with a view to securing a quantum leap in service through technology and re-engineering. The stark reality is that the industry is a net importer of technology. When one considers that a reasonably decent system may cost approximately US$4 Million, there are obvious opportunities for software development with the potential for export to countries whose market practices are similar to our domestic market. Opportunities include general insurance applications, connectivity and development of a health marketing module. It is imperative that Government and industry combine to develop a mechanism to take advantage of this opportunity.
A recent SwissRe survey confirmed that 75% of customers surveyed felt sufficiently confident to complete transactions on the telephone. Today's customers are increasingly more sophisticated, demanding convenience, speed and reduced price. In ever increasing numbers both banks, insurance companies and bank assurance companies are using technology to sell a range of financial products.
Direct line, a direct writer in the UK, after a decade of operations has 2.3 million policies in force. It has garnered the highest market share in the UK - 20%. Virgin Direct, after three months of operations secured 60 millions pounds from 14 thousands investors. A local direct insurer is seeking to emulate this success. The traditional distribution architecture is coming under siege from both client and company. Reduce acquisition costs and expenses, and aim for service excellence are the new mantras!
Dis-intermediation is occurring with companies going directly to customers. This is the new reality of the emerging electronic market place. In this new dispensation, where in the not too distant future, individuals will walk around with personal telecommunication systems which they use as telephones, computers and television sets, the traditional distribution architecture will have to be reconfigured. Distribution points will become access points to interface with customers. Network centered products must be developed. Products, particularly those which are IT driven, may have to have a greater "entertainment" element. Unconventional partnering, linked to strategy will have to be considered to create additional shareholder value. In the gathering storm, CEO's and senior management cannot nod off at the steering wheel.
In successive decades in which back office functions were automated: front office functions have been automated and in which the imperative is electronic connection to the consumer, our Supervisor of Insurance Office is trapped in a time zone of the 70's, with its afros, bell bottom pants and platform shoes.
The 1992 report for year 1991 is the most recent report available from the Supervisor of Insurance Office. Amendments to the Insurance Act, 1980, agreed by the Industry since 1990, have yet to see the light of day. Modifications to the Third Party Risk Act, it is reported, are under active consideration. Unfortunately the proposed modifications are themselves in need of review, in the light of technological developments, privatization, liberalization and the recent wave of new legislation. Annual recommendations made by the industry to Government must be urgently dusted off, reviewed and implemented where appropriate. Quite simply, the current regulatory and legislative framework are inappropriate. A new paradigm is required!
In this new dispensation, a crucial element for success is the constant honing of skills and knowledge. One of the critical success factors is the skills and knowledge of the individual and the collective intellectual capital of the company. Against the foregoing, several issues need to be addressed including:
"Are the University of the West Indies, the Academy of Insurance and other tertiary institutions, preparing aspiring insurance professionals for this changing environment? Is the relationship between academia and the insurance industry sufficiently strong to respond to these needs? And what of the success rates of aspiring insurance professionals writing exams locally and regionally? Are these programmes relevant and what revisions, if any, are required? How can we use our strengths at the regional level to inform training, and to better prepare our professionals to compete globally? Should these programmes have a greater regional dimension? Do we need as well to specifically revisit IT training as it relates to the insurance industry? These are some of the questions that must be addressed.
The industry is at a cross roads, with tremendous possibility, but formidable threats. Appropriate policy initiatives at the governmental level and at the macro economic level must be put in place to supplement corporate strategy. This will ensure the long term viability and success of the regional industry, which is responsible for the livelihood of more than 50,000 persons, and is the largest mobilizer of domestic savings.
Gerry Brooks is the holder of an MBA - Columbia University. He is an Attorney at Law and Executive Director of Trinidad and Tobago Insurance Company (Tatil).
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