Enterprise architecture for insurance companies
"The insurance market in Germany is still highly fragmented, and the crisis just increased the pressure to consolidate"
Insurance companies are facing a host of challenges, some of which they have created for themselves, but others due to the market environment. With a properly designed departmental and IT architecture, these obstacles can be overcome.
Even if the banking crisis largely spared the insurance sector – thanks to its conservative investment policy – the industry is currently facing certain structural challenges. Besides the constant demand for lower costs, the following five areas are being affected:
Even if the banking crisis largely spared the insurance sector – thanks to its conservative investment policy – the industry is currently facing certain structural challenges. Besides the constant demand for lower costs, the following five areas are being affected:
- Varied products and processes
The insurance product portfolio is very comprehensive and varies widely. Contributing to this variety is the fact that historical products and insurance tariffs are often retained even if their business volume has fallen over the past few years. In addition, the business processes for these various products can themselves be very different from one another. - High degree of internal vertical integration
Insurance companies still cover a large portion of their value chains themselves, even if the parts of the chain don't belong to their core business. These can often be outsourced to external partners on more affordable terms. - Deficits in risk and compliance management
Corruption and data misuse scandals at large European companies over the past months have highlighted the deficits in risk management and compliance. Insurance companies need to catch up in this area as well.
Besides these internal challenges, the market is creating additional complexity: - Changes in the sales landscape
While traditional sales organizations are on the wane, collaborative models and especially the internet are on the rise as sales channels. - Market consolidation
The insurance market in Germany is still highly fragmented, and the crisis just increased the pressure to consolidate. However, many insurance companies are still tied up with previous mergers.
Challenges and actions in the IT user landscape
IT architecture must be properly designed
To overcome these challenges, several insurance companies have already begun to make the necessary adjustments to their IT architecture. Below are several of the more promising approaches (figure 1).
To overcome these challenges, several insurance companies have already begun to make the necessary adjustments to their IT architecture. Below are several of the more promising approaches (figure 1).
Consolidating policy management and partner systems to standardize processes and products
Standardization and automation
To streamline the product and process landscape, each department must first define its own specific framework. At the same time, the plan can be supported by consolidating policy administration systems across segments into one single IT platform. In some cases it may be worth using standard software. But professional systems should first be standardized before standard software is introduced, otherwise the effort required for customization cancels out the savings.
However, simply consolidating policy administration systems is not enough to ensure standardization and automation: partners' data must also be merged and workflows harmonized (figure 2). A product machine also enables you to define standardized products across segments without changing the programming code.
To streamline the product and process landscape, each department must first define its own specific framework. At the same time, the plan can be supported by consolidating policy administration systems across segments into one single IT platform. In some cases it may be worth using standard software. But professional systems should first be standardized before standard software is introduced, otherwise the effort required for customization cancels out the savings.
However, simply consolidating policy administration systems is not enough to ensure standardization and automation: partners' data must also be merged and workflows harmonized (figure 2). A product machine also enables you to define standardized products across segments without changing the programming code.
Business process outsourcing
Non-core business processes such as entering application data can be done by customers themselves or by brokers. The IT systems used (e.g. the internet and brokers' extranets) must guarantee data protection, and the quality of data must be ensured via adequate validity checks.
If central functions such as input management, collection/disbursement or accounting are outsourced to external providers, you need to define clear interfaces between providers and internal IT systems. Service provision details must be set out in SLAs. Before outsourcing business processes, it is worth standardizing them internally and defining clear interfaces.
Establishing risk management
Before introducing a risk management system, you need to put in place suitable monitoring processes and structures. But that is not enough. The data available in data warehouses and decentralized systems is usually not consolidated in one central place. However, a rule engine needs a central database to check for risks and compliance breaches.
To create one of these, first a data set must be made from relevant decentralized systems such as asset management, policy administration and commission accounting on a data warehouse platform.
Supporting modern sales channels
To serve the increasingly important sales channels like the internet, broker platforms or collaborative business (e.g. white labeling via retailers or staff business) you need to simplify products and standardize processes. On the IT side, you need to create suitable authorization and authentification mechanisms and standardized interfaces between policy administration and sales systems.
Ensuring merger-readiness
The complex network of IT applications is a major hurdle when merging two insurance companies. Reducing the number of applications and thus interfaces is the main task. Applications must also be sufficiently scalable. In addition, you should establish a simple and consistent key numbering system that can be extended without changes to policy administration systems.
The key factor for successful integration of IT systems, however, is choosing the right integration method (e.g. specifying one application type as the standard rather than cherry-picking applications) – regardless of the merger-readiness of application types.
Specialist departments are essential
IT cannot handle these challenges alone. Specialist departments and IT have to work hand in hand. To make the IT landscape fit for use, you have to change the business processes as well.
Non-core business processes such as entering application data can be done by customers themselves or by brokers. The IT systems used (e.g. the internet and brokers' extranets) must guarantee data protection, and the quality of data must be ensured via adequate validity checks.
If central functions such as input management, collection/disbursement or accounting are outsourced to external providers, you need to define clear interfaces between providers and internal IT systems. Service provision details must be set out in SLAs. Before outsourcing business processes, it is worth standardizing them internally and defining clear interfaces.
Establishing risk management
Before introducing a risk management system, you need to put in place suitable monitoring processes and structures. But that is not enough. The data available in data warehouses and decentralized systems is usually not consolidated in one central place. However, a rule engine needs a central database to check for risks and compliance breaches.
To create one of these, first a data set must be made from relevant decentralized systems such as asset management, policy administration and commission accounting on a data warehouse platform.
Supporting modern sales channels
To serve the increasingly important sales channels like the internet, broker platforms or collaborative business (e.g. white labeling via retailers or staff business) you need to simplify products and standardize processes. On the IT side, you need to create suitable authorization and authentification mechanisms and standardized interfaces between policy administration and sales systems.
Ensuring merger-readiness
The complex network of IT applications is a major hurdle when merging two insurance companies. Reducing the number of applications and thus interfaces is the main task. Applications must also be sufficiently scalable. In addition, you should establish a simple and consistent key numbering system that can be extended without changes to policy administration systems.
The key factor for successful integration of IT systems, however, is choosing the right integration method (e.g. specifying one application type as the standard rather than cherry-picking applications) – regardless of the merger-readiness of application types.
Specialist departments are essential
IT cannot handle these challenges alone. Specialist departments and IT have to work hand in hand. To make the IT landscape fit for use, you have to change the business processes as well.
CIO Expert Column
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