The Canadian P&C insurance industry has seen a dramatic rise in business complexity in recent years — with more to come. Regulatory demands and changes play a part, but other factors are at work too, such as cost management, the need for "smarter underwriting" to select and price risks, and the expectations of demanding and sophisticated consumers for an ever-improving customer experience. Canadian P&C insurance organizations are increasingly turning to IT to solve many of their most pressing challenges.
The past few years have not been easy on Canadian P&C insurance companies. Following several years of a relatively benign underwriting environment, escalating claims costs have intersected with a slower economy, low investment returns, and downward pressure on premium rates.
The recent crisis in global financial markets has also created changes in the competitive environment for an industry that has traditionally had significant foreign participation. Some global companies responded to their own capitalization concerns and tightening regulatory requirements by realigning their business structures in Canada, withdrawing capital, or exiting the Canadian market. There are early signs of an acceleration of mergers and acquisition activity and industry consolidation.
At the same time, Canadian insurance consumers have also been going through a period of radical change. In part, this is related to shifting demographics and the different preferences of younger consumers as they enter the economy and mature. However, it is the rapid adoption of information technology by consumers of all ages in all spheres of their business and personal lives that has led to increased consumer demand for access to personal information (as is the case with health records or bank statements) and may pose the biggest challenge for forward-looking insurance providers.
After years of under-investment in IT, as compared to banks and other financial services players, many P&C insurers now face a more challenging and uncertain business environment and changing consumer demands. However, many organizations are finding that their IT systems are quickly aging and becoming increasingly obsolete. And while this is often a result of hasty integrations and organic development, most Canadian P&C insurance companies now suffer from a lack of flexibility and an overall inability to support the changing requirements of the business.
Achieving sustainable change
In response, Canadian P&C insurance executives are increasingly recognizing the need to invest in IT in order to react to these new complexities and market pressures. But as they look deeper under the hood of their IT environment, many are finding that their underlying systems (such as their claims and policy management systems) are insufficient to support the type of change that must occur.
Indeed, if insurance companies are to stay competitive, gain market share, and comply with changing regulations, they will need to rebuild large portions of their IT environment, not just to deploy many of the innovations that have become commonplace in parts of Europe and Asia, such as imaging, document workflow and client self serve, but also to quickly take advantage of any opportunities (or instability) that may lie ahead.
And while incremental steps are certainly critical to achieving complex change, it will take more than an adhoc approach to create sustainable and effective change that supports the future needs of the business. Instead, insurance executives will need to employ a more "transformative" approach and methodology that holistically integrates multiple change initiatives with an overall view of reducing total cost of ownership, increasing business flexibility, and growing market share.
Taking a transformative approach
There are no one-size-fits-all technology transformation roadmaps, and no endto- end, off-the-shelf software packages. For each insurance company, the transformation journey will take a unique path to reach the right destination for them. However, there are a number of key considerations that should be included in any transformational strategy. These include:
IT strategy: Any IT strategy that isn't aligned to the needs of the business is a recipe for failure. To create real and sustainable change, technology transformation must be 'business-led'. This will require Canadian insurance executives to help their IT departments learn more about the holistic needs of the business. This may be a truism, but the industry has tended to focus on efficiency or on specific investments, not on a companywide IT portfolio. Executives do not always understand the true value of IT, but perceive it as an expensive cost centre, consuming as much as 50 percent of the operating expenses. So when, for example, a new acquisition is considered, executives should ensure that IT is represented at the table to assess the real costs of post-merger integration. A Canadian insurer recently undertook an acquisition not just for the increased market share, but also to acquire a technology platform it believed provided a competitive advantage. A good IT strategy should demonstrate clear traceability to business strategies and intended outcomes.
Business reference models: These are standardized representations of the services, processes, and organization for a particular industry. The use of reference models helps to lower costs (customize vs. build from scratch) and increase the quality (completeness, consistency, alignment) of a transformation initiative.
When defining the ideal "end state" for transformation, it helps to have robust business reference models that can stand as the organization's "true north" throughout the transformation initiative. But these are not just models to be built, displayed, and then left on the shelf to collect dust. Business reference models must act as a central tool for the management and prioritization of projects if organizations are to achieve a long-term vision.
Without this reference point, it is easier to invest in projects that present a positive business case, but may not progress you towards the desired end state. In the same way strategy should define what business you are in and what business you are not, business reference models can help you decide which investments to make and which ones not to.
Transformation governance: This provides the structures that support decision making. It defines who gets to make what decisions and how during a transformation initiative. Major multi-year change initiatives require a strong governance framework to not only ensure the ongoing alignment of projects with objectives, but also to create an environment of continuous improvement and innovation. And given that most traditional governance approaches actually do more to impede transformation initiatives than support them, many insurance executives may find that — by combining portfolio management techniques with a strong adherence to IT strategy — they can create a new governance model that effectively supports the wider transformation.
Portfolio management: This is the approach to assessing and prioritizing projects based on their contribution to the business strategy, which helps to ensure that critical resources are applied to the right projects at the right time. When undergoing multiple interdependent projects to achieve a transformative goal, Canadian insurance executives will find that standard project management practices for managing discrete projects often fail to address the complexities and risk of transformation initiatives. Instead, a portfolio management approach can provide a process by which individual projects can be coordinated, governed, and even turned on and off as project cycles progress. This will allow for resources to be directed to the projects that will provide the most value (or present the most risk) and reduce costly overlaps and redundancies.
Managing progress and expectations
Insurance executives should remember that this type of transformation doesn't happen overnight. It requires the organization to follow an appropriate pace that facilitates change and minimizes disruption to the day-to-day operations of the business. As a result, Canadian insurance IT executives will find it increasingly important to set reasonable expectations with both the executive suite and customers/brokers about the rate of change, size of return, and extent of disruption.
But at the end of the day, those P&C insurance companies that take a long-term transformational approach will generally enjoy increased agility to respond to market changes, a reduced cost of ownership for their systems, and a strong framework for future growth.
Case Study: How a P&C insurer transformed for success
For a leading Canadian P&C insurer, the need for transformational change was obvious. The company had entered into a successful "White Label" agreement to provide direct insurance sales through an online financial services provider. But when it came time to extend the same platform to its broker network, and directly to the consumer, the company quickly found that its technology ecosystem was insufficient and incapable of managing the new demands that this service created. In response, the organization recruited KPMG's Insurance professionals to conduct a review of their existing IT infrastructure and strategy in order to develop an architecture that reflected the business's new priorities.
This included the creation of an enterprise application architecture that supported the Policy Management, eCommerce and Business Intelligence requirements, as well as a transformation program (tens of millions of dollars over multiple years) that was designed using a portfolio management framework and approach.
As a result, the organization was able to map and execute a multi-year corporate project plan that included defensible costs and benefits, provided a consistent framework for the review and approval of discrete projects, and supported regular and effective evaluations of the master plan to ensure continued alignment to corporate priorities. And, by following the 3-year plan, the organization was positioned to seamlessly and efficiently roll out a direct-to-consumer and broker channel within a selffunding portfolio model that both reduced cost and increased sales opportunities and fulfillment.
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