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Market-specific core applications vs. Cross-border single application

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21 July 2009
Nicolas Michellod

Many insurers - especially in Europe - face the challenge of conducting business in different countries. Having activities in different geographies has its good side for instance it allows them to diversify their risk but it has also its bad side notably when insurers want to define a strategy in terms of core applications deployment. Insurance markets have very different distribution dynamics and risk pricing experience in one market might not be relevant for another. In addition, differing tax and regulatory treatment, as well as different currencies and languages can act as further roadblocks. Overall insurers can choose between two strategic alternatives: deploy a single core application cross-borders, or implement a dedicated core application in each market.

There are many important factors that have to be taken into consideration when making this very important decision. A cross-border deployment requires insurers to consider specific issues such as the following:

The complexity of the project: implementing a core insurance application in one market is already something difficult therefore deciding on a cross-border deployment is certainly very complex. In this context, it is important insurers take the necessary time to carefully analyse and plan all aspects linked to such a project. In particular, Celent considers it is highly important that insurers use integrators having already a strong experience in working in cross-geographies projects.

Shared service centre requires multiple language skills: providing a service centre for different European countries implies that multiple languages have to be offered without giving the impression to customers that their needs or requirements might be misunderstood for cultural reasons.

Product complexity: beside the project complexity, a core application such as a policy administration system has to offer a high level of flexibility if insurers want to have a single platform to deal with different set of regulations, taxes, requirements, etc.

Change management: such a project has more to do with managing complexity and change rather than process and technology. Therefore Celent thinks that the project management side must be perfect and coordination of activities and tasks between stakeholders during the implementation and deployment cross-borders have to be delicately thought and then professionally executed.

In Europe, some insurers prefer prioritizing the approach consisting in implementing a dedicated core application in each specific market. In emerging markets (Eastern Europe for instance) where it is important to acquire market shares rapidly, they believe that priority should be given to a partnership with a local vendor having a certain experience and expertise in the market. Then, as soon as the market will have reached its maturity, these insurers will certainly start rationalizing their core application landscape in order to gain competitive advantages. But for the moment, these players prefer acquiring market shares as fast as possible before these markets reach maturity.

Both approaches are interesting and deserve a careful attention. This is why Celent is planning to publish a research about this topic before the end of the year. In the meantime, Celent recommends insurers to have a look at the following report: Policy Administration Systems for General Insurers in Europe 2009 (Celent will publish a report about policy administration systems in the life sector in Europe in the 3rd quarter of 2009 too). Indeed, whatever the strategic approach insurers choose, they still need to find the best policy administration system(s) that will help them optimally execute actions supporting their long term strategic objectives achievement.

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