"Pain Points" of Insurance Industry
Some of these are mentioned below:
1) Pressure on Bottomline: Historically Insurance products were guided by regulators in terms of pricing and coverage provided. With the recent de-regulation in various countries, a price war has emerged with companies bleeding with claim ratios in excess of 100%. This has directly resulted into pressure on bottomline of the companies.
2) Disparate operational systems: Insurance business comprises of multiple processes like Underwriting, Policy creation, Documentation, Claims, renewals, financial reporting, regulatory compliances etc The Industry is one of the oldest and has grown a lot over the past few years. However Insurance companies are still working on multiple legacy systems for these various business processes. The result is ineffective and inefficient operations. As the market has evolved, so has the products being offered by these companies. With product complexity increasing there is a need of strong operational support to service the clients. With th disparate operational systems, even this aspect continues to be a challenge
3) Demanding Customer: The general Insurance coverage is typically for 12 months only, after which it has to be renewed. Therefore unlike many other industries here the profitability is linked to higher customer retention. Further, the insurers also get an opportunity to cross sell their products to their existing customer base. This has become a challenge with the price war, absence of a single view of the customer and resultant poor customer servicing due to old operational systems. Further with the insurance companies suffering from high incidence of false claims, customers are facing difficulty in getting their legitimate claims processed in time. This has again lead to the dip in customer satisfaction.
4) Regulatory requirements: Insurance is governed by local regulatory compliances in geographies of the world. This is mainly to monitor solvency margin of insurance companies and to reduce consumer risk. The insurers have to submit report and documents to abide by the regulatory compliances as well as face regular audits. This is an ongoing process and requires strict reporting activities by the insurers. Regulatory compliances also govern the investments of these insurers to ensure they are not taking undue risks as part of their portfolio for increasing their bottom-line. Coping with these strict compliances and complex reporting is a challenge faced by insurers.
5) Channel conflicts: For years the traditional Insurance business has been done and handled by agents and brokers. Insurers have also looked into creating new distribution channels in terms of selling Insurance through Banks also called as Bank assurance. With number of channels increasing the conflicts is increasing as well in terms of commissions and servicing provided to these channels. Insurers have to look into solving these conflicts and optimizing the distribution channel so as to increase the productivity. Also due to increased competition, there is a lot of poaching into these channels.
6) Integration of risk considerations into their decision-making and strategic execution: The profitability of insurance companies depends on the quality of risk underwritten. Good underwriting activity requires historical data about risk and claims. Getting these data in required shape is a challenge as there are no good reporting systems available with insurers. Data sharing regarding claims ratio of clients is not done between different insurers. Accepting good risk and filtering out bad risk is a challenge due to lack of availability of desired information.
In order to face these challenges the industry is now looking increasingly to information technology and web enablement to create sustainable value and maintaining the rate of growth in future. The industry is looking at IT emerging technologies and integrating them with existing products and processes in order to stay competitive. In my next Blog, we would discuss about such emerging technologies and products which would help insurers to mitigate these pain points effectively.
If you have worked in this Industry and have had the experience of supporting this Industry from an IT standpoint, please do share your thoughts as comments of the blog.
Comments
The issues raised above are very pertinent. Let me comment upon customer handling for which I would like to quote an abbreviation: MCOPE: (M) Stands for management of the customer company, their attitude towards risk management, approach to insurance as an integrated tool for mitigating transferable risks, their viewing Insurers as partners in sustainable growth. (C) Stands for construction of the risk, the walls, the type of construction of the buildings, etc. (O) Stands for operation that is being carried out, the processes involved, the hazards that emanate, be it physical or relating to operating environment, the logistics and most importantly the profitability of the firm in business. (P) Stands for protections that the organisation has to mitigate the losses, be it again physical loss to property or the human life. Do they have a Safety and security management department. (E) Stands for the environment, outside the premises of the risk, it seeks to cover the very near environment, like the adjacent risks, the people in the area, the political influences, and finally the vagaries of nature.
Thus one would see that to calculate the exposures to a customer the above factors give a very comprehensive overview.
No customer is good or bad. It has been seen that some of the large companies are very slipshod in their approach to risk management and then it becomes a challenge to make them comfortable to the concept of "Progress in Partnership". They think that there has never been a loss so it will never happen. The marketing force in order to complete the sales, also take advantage and sell products which are very basic and in some cases, irrelevant to the customer. Customer needs to be guided by one and all.
Thus the most challenging issue is to get our marketing force to be imbibe the culture of "Risk Management" in their hearts and not let a risk slip attention, just for a few bucks more. It is the question of long term sustainability of the industry which is good for everyone. The compensation structures have to be so designed that, the marketing force not only gets an incentive for growth but also for profits and the penalties should be heavy too.
It is important to start a culture now. The same person can work in many different companies over his career span, and it thus is the joint responsibility of all companies to have a common culture.
Over the past decade of privatisation, all the private sector and public sector have seen a blood bath and have now gone in a defensive mode to save their organisations from insolvency. The EILR's are dipping, the solvency margins are bare minimum, the threat of collapse is very much in sight.
Fortunately, none have collapsed, even though there are talks of mergers in the market. If there is a collapse, it the customer who will suffer alongwith the marketing force too.
So, it finally comes down to the market, the business procurement practices, the training of the marketing force, and finally the solicitation of the customer's support for participative insurance risk management. What are we waiting for !!!!! It is never too late. As they say, ATTITUDE has to change.
Vivek Narain
30 yrs in insurance field...currently Vice President & Head Global Insurance at Suzlon Energy Limited, a US$ 4.5Bn turnover company.
Posted by: Vivek Narain | September 23, 2010 7:07 AM