LONDONUnlike the United States where insurance carriers frequently take a decentralized approach to their information technology programs, European insurers control many of their IT development and systems from the centerwhich they believe brings enhanced cost efficiencies.

Due to the fact many U.S. carriers write composite businessin the areas of life and health as well as property/ casualtymost of their IT programs are decentralized and implemented on a regional or divisional level, according to Axel Pierron, analyst for research firm Celent Communications, in Paris. However, the centralized, global approach adopted by European insurers is more cost-effective, he says.

Indeed, comments from a random selection of European companiesAllianz Group, AXA Group, Munich Re, and Zurich Financial Servicesshow much of their IT is being coordinated centrally.

Its hard for each line of business in each country to do its own cooking, trying and developing its own technology, says Pierron. As a result, many European companies have decided to let a centralized unit make decisions for the entire companychoosing and applying a technology for different lines of business, he adds. This is a lot more cost-effective than what is done in America, where the units do their own thing, he affirms.
European insurers used to do business in a decentralized manner, like their American counterparts, Pierron says, but that has changed over the past several years. Its a question of cost reduction, he explains, noting in the past when investment income was strong, European insurers did not have to focus as much on reducing operating costs.

The European insurance industry perceives IT investment as a tool to achieve an enterprisewide strategy, according to a report issued recently by Celent, co-authored by Pierron, titled IT Spending Trends in European Insurance. Where American and European carriers are the same, says the research firm both in its recent report on Europe and in a report it issued on the American market last year, is that most IT investment and new projects are focused on a short-term period to generate a quick [return on investment].

Still, insurance companies need to do some investment in IT in the medium term, not just the short term, Pierron says, explaining there clearly is a need for large investment, especially for some of the core systems. But European companies have cut back on their IT spending due to the previous two years of turbulent economic conditions when insurers have been hit by falling interest rates and the collapse of stock prices, Pierron acknowledges.

Indeed, Celent estimates European insurance carriers will spend 21.7 billion euros on information technology in 2003, which is a 1.8 percent decrease from 2002. By 2004, Celent predicts IT spending will reach 22.3 billion euros due to the need for European carriers to implement customer information systems and improve internal workflow processes.

Objective: Cost Reduction
The most common benefit of IT investment is cost reduction, Celent says, noting 85 percent of market leaders place cost reduction in their top three IT objectives. The second most common goal of IT projects is enabling cross-selling and improving customer services, which both were cited by 63 percent of those surveyed, according to Celent. Fourth on the list is increasing delivery speed (cited by 38 percent of those surveyed), improving underwriting results (cited by 30 percent of those surveyed), and increasing flexibility to enter new markets or new products (cited by 21 percent).

Insurance companies goals with new technology are to improve customer service and enable cross-selling and to cut costs, says Isabella Fonseca, co-author of the Celent report, in a statement. Insurance firms are focusing their attention on a number of technologies to meet these goals, including customer management, risk management, and claims management systems.

Today, insurers face an environment of low inflation, lower investment, and lower available capital, so they need to improve operational performance to deliver satisfactory returns, the Celent report says. So as the main issue in European insurance companies is to improve overall efficiency, the objectives of IT investment are not different. The expected benefits of IT initiatives eventually should [affect] revenue growth, cost reductions, and technical margin improvements.

Some companies also are implementing centralized systems to comply with legal requirements. For example, Munich Re in February announced it was implementing the reinsurance management capabilities of mySAP Insurance to manage portfolios efficiently while complying with International Accounting Standards and Generally Accepted Accounting Principles.

Reinsurance management capabilities provided by mySAP Insurance will enable Munich Re to comply with ever-changing legal requirements and carefully analyze the policies in which they participate to more effectively manage risk and protect themselves from potentially devastating financial effects, the company says in a February statement.

Industrialized Approach
To derive the most advantage from limited budgets for IT spending, European carriers take an industrialized approach, asserts Pierron. They eventually will integrate successful IT projects into all their different lines of business. An IT system is developed for one product, he explains, and then adopted for another product. For example, if a claim management system for automotive insurance is used as a base for other products, the costs are spread across different lines of business, he says.
Several European insurers have implemented programs to improve company efficiencies. Some have a centralized approach; others have a decentralized approach, but decisions for spending are coordinated centrally.

Allianz Group is an international financial services provider with 700-plus subsidiaries in more than 70 countries. Most of the business is local, and the structure of Allianz Group is decentralized, says Oliver Bussmann, head of group information management. But in terms of IT, all Allianz companies can profit from joint IT solutions within the group.

Indeed, he adds, group center provides group-wide coordination of global IT initiatives. Our goal is to realize as many synergies and [knowledge] transfers as possible, he explains. For international businesses like Allianz Dresdner Asset Management and Allianz Global Risks, centralized IT support is aimed to integrate worldwide companies/divisions closely.
Furthermore, Bussmann indicates Allianz pursues two major IT goals. First, he says, Allianz capitalizes on all IT synergies a group of our size can exploit, and second, it supports our increasingly international business with powerful and efficient IT solutions that can be used by all companies.

At the same time, a lot of the business is local and can best be supported by the systems of the local company, he adds. Within, say, the German market, the different Allianz companies are centralizing systems and applications in areas where they achieve synergies, he points out.

For example, they use one platform for all Internet applications such as online insurance and premium calculators for clients, he continues. Also Allianz has built a private virtual network that supports the sales process for all 14,000 agents in Germany.
According to the Celent study, outsourcing has become a major strategy at European insurance firms to reduce costs. Regarding the question of outsourcing at Allianz, Bussmann responds there isnt one answer for the entire group. In Germany, for example, we decided to outsource the IT services provider into a subsidiary, AGIS, Allianz Dresdner Gesellschaft fr Informationssysteme. AGIS provides the German Allianz companies and other renowned companies with a complete range of IT services, including all EDP center and network services.

However, around the world, selected IT tasks are outsourced on a project basis, he affirms. For example, Allianz has been working with an application service provider to launch an e-recruiting solution that will be introduced in different countries successively.

Three Central Units
AXA Group in Paris has taken a centralized approach that promotes IT process improvements by benchmarking and adopting best practices as well as identifying, quantifying, and proposing IT opportunities that cannot be dealt with at one company level, says AXA representative Clara Rodrigo. As a result, AXA has created three unitsAXA Tech, AXA Consulting, and AXA e-servicesto coordinate its IT operations.

AXA Tech was created in January 2002 after the firm recognized significant savings could be realized by consolidating IT service delivery infrastructure operations across the group, she says.
In February 2003, AXA Tech and IBM signed an on-demand services contract. The deal aims to enhance the performance and efficiency of AXAs global computing infrastructure, she affirms, noting the company expects to make considerable savings over the six-year term of the agreement.

AXA Consulting was set up to implement, integrate, and reengineer software or new technologies available as packaged solutions, Rodrigo says, adding it provides operational assistance for the strategic needs of AXA companies throughout the world.

Further, AXA e-services offers e-solutions for all of AXAs global subsidiaries and identifies the best available market packages that meet specific business requirements, she says. This unit also builds mutualized services and/or applicative layers on top of packages bought from outside vendors, she adds.

These three units are conceived as genuine service providers and invoice all services rendered, Rodrigo says. To maintain the trust of their customers, they will have to be able to show the services paid for actually are delivered and they live up to agreed-upon standards of quality.

One Global System
Munich Re announced in February 2003 it was centralizing its IT systems by implementing the reinsurance management capabilities of mySAP Insurance. The system is designed to handle core business processes and replace various legacy systems with a single comprehensive solution, Munich Re says in a February statement.

The system was implemented to support the needs of a global player: common data, common processes, organizational flexibility, says Udo Schucar, project manager for Munich Re. This finally will lead to a much better transparency of our business worldwide and will speed up the processes.
It is Munich Res goal to have a single point of data entry, he says. The diversity of systems around the Munich Re Group caused parallel development and maintenance and would hinder Munich Re from achieving its objectives within an acceptable time, he adds.

The main specialty of this implementation is, first of all, the effort to come to a worldwide business language, Schucar says, explaining this means common data semantics and business processes.

The goal is for effective use of Munich Res manpower and avoiding unnecessary work for people who should concentrate on improving our business and client relationships, he says. A unification of data and processes will lead to a high consistency of data and avoid multiple data entry, Schucar explains.
Another company that has developed a centralized global IT strategy is Zurich Financial Services. In May, the company announced it has developed the framework for a global IT strategy that would bring significant efficiency gains to the company by facilitating knowledge sharing, resource pooling, and the implementation of consistent processes and systems across the whole Zurich organization.

Within this framework, IT resources are managed in a centralized and cost-efficient way, says the company in a statement. Services are planned to be consolidated and streamlined throughout the company.

A Billion Reasons
The centralization and streamlining of Zurichs IT functions is part of a comprehensive program designed to improve profitability by $1 billion [in 2003], the company adds.

As a result of this program, according to Zurich representative Daniel Hofmann, the company expects IT-related savings to be approximately $100 million in 2003. In the past, individual companies within Zurich enjoyed a large degree of independence in the choice of their IT solutions, which created, from todays perspective, overlaps in services and products in some areas, says Hofmann.

However, by consolidating and streamlining these services, he says, Zurich plans to simplify and standardize its IT environment. One big step in this direction was the announcement in July of the integration of Zurichs data center in Swindon, England, into the data center in Switzerland. And by the end of August, we completed the first phase of the data center consolidation in the United States, he says.

Zurich plans significant cost reductions by simplifying and standardizing its European data center infrastructure, the company notes in a statement to announce the decision.
The consolidation of the two data centers and a similar project in the United States are two of many strategic IT projects we started this year and are expected to transform our IT functions over the coming years, says Michael Paravicini, chief information technology officer of Zurich Financial Services, in a statement from the company. Their successful completion will contribute to the cost-efficient delivery of IT services throughout the group.