LONDONUnlike the United States where insurance carriersfrequently take a decentralized approach to their informationtechnology programs, European insurers control many of their ITdevelopment and systems from the centerwhich they believe bringsenhanced cost efficiencies.

Due to the fact many U.S. carriers write composite businessin theareas of life and health as well as property/ casualtymost of theirIT programs are decentralized and implemented on a regional ordivisional level, according to Axel Pierron, analyst for researchfirm Celent Communications, in Paris. However, the centralized,global approach adopted by European insurers is morecost-effective, he says.

Indeed, comments from a random selection of EuropeancompaniesAllianz Group, AXA Group, Munich Re, and Zurich FinancialServicesshow much of their IT is being coordinated centrally.

Its hard for each line of business in each country to do its owncooking, trying and developing its own technology, says Pierron. Asa result, many European companies have decided to let a centralizedunit make decisions for the entire companychoosing and applying atechnology for different lines of business, he adds. This is a lotmore cost-effective than what is done in America, where the unitsdo their own thing, he affirms.
European insurers used to do business in a decentralized manner,like their American counterparts, Pierron says, but that haschanged over the past several years. Its a question of costreduction, he explains, noting in the past when investment incomewas strong, European insurers did not have to focus as much onreducing operating costs.

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

Still, insurance companies need to do some investment in IT in themedium term, not just the short term, Pierron says, explainingthere clearly is a need for large investment, especially for someof the core systems. But European companies have cut back on theirIT spending due to the previous two years of turbulent economicconditions when insurers have been hit by falling interest ratesand the collapse of stock prices, Pierron acknowledges.

Indeed, Celent estimates European insurance carriers will spend21.7 billion euros on information technology in 2003, which is a1.8 percent decrease from 2002. By 2004, Celent predicts ITspending will reach 22.3 billion euros due to the need for Europeancarriers to implement customer information systems and improveinternal workflow processes.

Objective: Cost Reduction
The most common benefit of IT investment is cost reduction, Celentsays, noting 85 percent of market leaders place cost reduction intheir top three IT objectives. The second most common goal of ITprojects is enabling cross-selling and improving customer services,which both were cited by 63 percent of those surveyed, according toCelent. Fourth on the list is increasing delivery speed (cited by38 percent of those surveyed), improving underwriting results(cited by 30 percent of those surveyed), and increasing flexibilityto enter new markets or new products (cited by 21 percent).

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

Today, insurers face an environment of low inflation, lowerinvestment, and lower available capital, so they need to improveoperational performance to deliver satisfactory returns, the Celentreport says. So as the main issue in European insurance companiesis to improve overall efficiency, the objectives of IT investmentare not different. The expected benefits of IT initiativeseventually should [affect] revenue growth, cost reductions, andtechnical margin improvements.

Some companies also are implementing centralized systems to complywith legal requirements. For example, Munich Re in Februaryannounced it was implementing the reinsurance managementcapabilities of mySAP Insurance to manage portfolios efficientlywhile complying with International Accounting Standards andGenerally Accepted Accounting Principles.

Reinsurance management capabilities provided by mySAP Insurancewill enable Munich Re to comply with ever-changing legalrequirements and carefully analyze the policies in which theyparticipate to more effectively manage risk and protect themselvesfrom potentially devastating financial effects, the company says ina 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 alltheir different lines of business. An IT system is developed forone product, he explains, and then adopted for another product. Forexample, if a claim management system for automotive insurance isused as a base for other products, the costs are spread acrossdifferent lines of business, he says.
Several European insurers have implemented programs to improvecompany efficiencies. Some have a centralized approach; others havea decentralized approach, but decisions for spending arecoordinated centrally.

Allianz Group is an international financial services provider with700-plus subsidiaries in more than 70 countries. Most of thebusiness is local, and the structure of Allianz Group isdecentralized, says Oliver Bussmann, head of group informationmanagement. But in terms of IT, all Allianz companies can profitfrom joint IT solutions within the group.

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

At the same time, a lot of the business is local and can best besupported by the systems of the local company, he adds. Within,say, the German market, the different Allianz companies arecentralizing systems and applications in areas where they achievesynergies, he points out.

For example, they use one platform for all Internet applicationssuch as online insurance and premium calculators for clients, hecontinues. Also Allianz has built a private virtual network thatsupports the sales process for all 14,000 agents in Germany.
According to the Celent study, outsourcing has become a majorstrategy at European insurance firms to reduce costs. Regarding thequestion of outsourcing at Allianz, Bussmann responds there isntone answer for the entire group. In Germany, for example, wedecided to outsource the IT services provider into a subsidiary,AGIS, Allianz Dresdner Gesellschaft fr Informationssysteme. AGISprovides the German Allianz companies and other renowned companieswith a complete range of IT services, including all EDP center andnetwork services.

However, around the world, selected IT tasks are outsourced on aproject basis, he affirms. For example, Allianz has been workingwith an application service provider to launch an e-recruitingsolution that will be introduced in different countriessuccessively.

Three Central Units
AXA Group in Paris has taken a centralized approach that promotesIT process improvements by benchmarking and adopting best practicesas well as identifying, quantifying, and proposing IT opportunitiesthat cannot be dealt with at one company level, says AXArepresentative Clara Rodrigo. As a result, AXA has created threeunitsAXA Tech, AXA Consulting, and AXA e-servicesto coordinate itsIT operations.

AXA Tech was created in January 2002 after the firm recognizedsignificant savings could be realized by consolidating IT servicedelivery infrastructure operations across the group, shesays.
In February 2003, AXA Tech and IBM signed an on-demand servicescontract. The deal aims to enhance the performance and efficiencyof AXAs global computing infrastructure, she affirms, noting thecompany expects to make considerable savings over the six-year termof the agreement.

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

Further, AXA e-services offers e-solutions for all of AXAs globalsubsidiaries and identifies the best available market packages thatmeet specific business requirements, she says. This unit alsobuilds mutualized services and/or applicative layers on top ofpackages bought from outside vendors, she adds.

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

One Global System
Munich Re announced in February 2003 it was centralizing its ITsystems by implementing the reinsurance management capabilities ofmySAP Insurance. The system is designed to handle core businessprocesses and replace various legacy systems with a singlecomprehensive solution, Munich Re says in a Februarystatement.

The system was implemented to support the needs of a global player:common data, common processes, organizational flexibility, says UdoSchucar, project manager for Munich Re. This finally will lead to amuch better transparency of our business worldwide and will speedup the processes.
It is Munich Res goal to have a single point of data entry, hesays. The diversity of systems around the Munich Re Group causedparallel development and maintenance and would hinder Munich Refrom achieving its objectives within an acceptable time, headds.

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

The goal is for effective use of Munich Res manpower and avoidingunnecessary work for people who should concentrate on improving ourbusiness and client relationships, he says. A unification of dataand processes will lead to a high consistency of data and avoidmultiple data entry, Schucar explains.
Another company that has developed a centralized global IT strategyis Zurich Financial Services. In May, the company announced it hasdeveloped the framework for a global IT strategy that would bringsignificant efficiency gains to the company by facilitatingknowledge sharing, resource pooling, and the implementation ofconsistent processes and systems across the whole Zurichorganization.

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

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

As a result of this program, according to Zurich representativeDaniel Hofmann, the company expects IT-related savings to beapproximately $100 million in 2003. In the past, individualcompanies within Zurich enjoyed a large degree of independence inthe choice of their IT solutions, which created, from todaysperspective, overlaps in services and products in some areas, saysHofmann.

However, by consolidating and streamlining these services, he says,Zurich plans to simplify and standardize its IT environment. Onebig step in this direction was the announcement in July of theintegration of Zurichs data center in Swindon, England, into thedata center in Switzerland. And by the end of August, we completedthe first phase of the data center consolidation in the UnitedStates, he says.

Zurich plans significant cost reductions by simplifying andstandardizing its European data center infrastructure, the companynotes in a statement to announce the decision.
The consolidation of the two data centers and a similar project inthe United States are two of many strategic IT projects we startedthis year and are expected to transform our IT functions over thecoming years, says Michael Paravicini, chief information technologyofficer of Zurich Financial Services, in a statement from thecompany. Their successful completion will contribute to thecost-efficient delivery of IT services throughout the group.