IBM chose Berlin, a bustling mix of past and future, to outline its vision for general insurance. Dermott White reports

If there was one message to emerge from the 2002 IBM Global Insurance Executive conference, it was that to get the best out of technology, you had to get the best out of your people, your staff.

This emphasis reflected the conference's title, "Intelligent Growth", and its theme of achieving real shareholder returns.

The title was chosen to reflect the way insurance companies have emerged from a decade of trying to achieve growth and market share at any cost; a decade where they competed almost entirely on price and deferred the ability to create value through growth to another time.

"Just as the dotcom era has passed, so has growth at any cost passed," said IBM global insurance manager Bill Pieroni as he opened the conference.

He added: "Our definition of intelligent growth is value creating growth for the shareholders, first and foremost, but also for the stakeholders - the employees and the communities in which insurers operate."

It is no surprise then, that three of the other key drivers of growth were considered to be co-operation, cross-industry collaboration and open standards.

IBM global financial services general manager Jerry Cole said the "networked world" created by the internet would provide insurers with their greatest opportunities.

The sort of co-operation required in a networked world is heavily dependent on shared technology standards. Cole urged insurance executives to entrench open standards in the industry.

Other industries, such as motor and construction, have done this to the benefit of the customer for years.

This is exactly the point that scuppered i2i-link last year.

"Please use your peer groups and industry associations for this purpose and refuse to buy from IT suppliers whose offerings do not work with other products in the marketplace."

Berlin: an exciting city with pace
There is something undeniably appealing about the "buzz" or fast-moving pace of many big cities. But now, Berlin is even more exciting than most and the perfect site for a conference to assess the recovery of the insurance industry and the technology sector.

And why did IBM make the effort to organise such a large event?

Pieroni said: "Our confidence in the insurance industry has never been stronger, given the incredible opportunities for insurers to grow profitably in this climate of underwriting discipline and rising rates."

Pieroni set the tone for the conference the moment he stepped on stage.

The thought of 15 consecutive presentations over two days is enough to make even the most committed reporter anxious but, from the start, Pieroni's enthusiasm and attention-grabbing speaking style suggested that this might not be too bad after all.

And so it proved throughout the conference. All the speakers confirmed IBM's high reputation for hosting entertaining conferences.

But it was not just the speakers, or the clockwork efficiency of the conference. IBM's choice of Berlin as the city in which to stage it was well considered too.

Cost cutting on the Lloyd's hub
The insurance industry is in trouble. And not just in the direct, immediately obvious ways that have been highlighted by disasters like the destruction of the World Trade Centre in September last year.

It faces another, more subtle threat from alternative, non-competitive ways of managing risk, such as captives. chief executive Ashok Gupta made this point at the conference while explaining the next step in's

e-commerce strategy, Project Blue Mountain (see page 43 for further details).

Gupta said the change in annual premium growth in the commercial insurance market over the past 15 years had barely kept pace with inflation, averaging just over 3% per year, while alternative risk transfer (ART) premium growth had been accelerating at an increasing rate.

"So clearly, while the risk business is growing, commercial insurance is not. Consumers do not view commercial insurance as an efficient way to manage risk."

Gupta said the main reason for this was that 30% to 40% of every dollar poured into insurance was consumed by frictional costs.

However, he added that by applying e-commerce sensibly, the non-claims part of insurance expenses could be cut dramatically.

"According to research by Morgan Stanley and Bain & Co, 30% of that can be realised by what companies do internally. But the remaining 70% can be realised only by solutions that operate across companies and between companies... And that's what Project Blue Mountain is aiming to achieve."

Gupta stressed that Blue Mountain was not an exchange: "Essentially it is an electronic hub connecting brokers and insurers to facilitate the flow of information and data between them, to enable them to place business and manage claims more efficiently."

He said Blue Mountain would be used for changing distribution strategies, reducing costs and giving better control over the underwriting process.

He added that it would cut through unnecessary administration to support every operator's current way of doing business, both offline and online.

"This is not just about technology. This is about connectivity at every level. It means connecting with company systems, processes and their people... And more connectivity means less hassle."

Gupta said Blue Mountain aimed to achieve this cross-industry connectivity by building interfaces with the systems of each of Lloyd's major trading partners. He said that would enable data to be transferred out of each customer's system, in its data format, into its trading partner systems, in its data formats.

"By reducing administration, we can enable brokers and underwriters to concentrate on the areas where they add value to their customers, and so help them grow."

Vital accord on standards
The idea of moving information between different organisations is not new. But to do it efficiently, and in a manner that improves the bottom line, requires extensive co-operation and partnership within and across industries. Every player must agree on a set of standards that allows electronic information to be exchanged.

Gregory Maciag, the president and chief executive of Acord, the insurance industry's global standards setting body, said: "Industry data standards are essential for what the industry wants to achieve. Without them, you will not be able to do business with other people."

He said people within the industry were finally starting to take the issue seriously because standards not only enabled a business to function, but also because they provided key advantages like lower costs and multi-channel distribution. Even more importantly, he said, they allowed businesses to "leverage" their partnerships and allowed development of new products and services. Maciag said the latest industry standard, XML, was flexible, easy to read, usable outside the internet and made entry of single datum easier.

Sharing customer data
Most insurance companies have already realised the importance of customer relationship management (CRM), but few have invested in it quite as heavily as Allstate, the largest personal lines insurer in the US.

Allstate, with a market capitalisation of $30bn (£18.75bn), is taking CRM so seriously that it has set up its own "CRM Centre of Excellence", to help integrate CRM-related strategy, technology, process and people issues across the company.

Allstate vice president of enterprise CRM Dennis DeGregor said: "We've embedded it in our corporate strategy... we use CRM as the bridge between the product factories, the channels and the customer."

Allstate's motivation is that CRM can provide information it can exploit across all its distribution and customer service channels.

DeGregor said research from the Gartner Group suggested that companies that invested in CRM technology across their enterprises realised as much as a ten times return on investment.

"Our early results suggest that Gartner may actually be right about this," he said.

Allstate began integrating all its distribution channels in 2001. DeGregor said the company was striving for perfect data sharing across all channels, and hoped to have reached that stage - a customer-centric operating model - by 2003.

But introducing a CRM system was not easy, he said. "Successful CRM initiatives start with the recognition that it is a transformation initiative, not a technology project."

A world-beating dream screen
This advanced piece of IBM technology is the world's highest resolution monitor. The T221 flat-panel screen is about half a metre wide, weighs 12kg and boasts an eye-boggling resolution of 3,840 x 2,400 pixels (9,216,000 in total). In comparison, the regular 15in screen attached to most office PCs has only 1,024 x 768 pixels (786,432 in total). A pixel (picture element) is the small dot on the screen which, when activated, illuminates to form part of an overall picture.

Megapower from new supercomputer
An IBM conference just wouldn't be an IBM conference without mention of some supercomputing. The latest number-crunching project in development is Blue Gene, which is at the cutting edge of processing technology.

IBM deep computing director William Pulleyblank said IBM was developing a supercomputer that, when ready in 2004, would have the combined processing power of the top 500 supercomputers in the world today. Blue Gene would not be devoted to whipping chess grand masters, but would analyse and reconstruct the proteins that make up the human body. Pulleyblank said IBM expected this type of technology to revolutionise life sciences to allow, among other things, personalised medicine, created for each patient.

Computing power would also be used more effectively to help people manage their information and make the right financial decisions about their major life events, said Pulleyblank. He added that organisations that provided this type of service would encourage loyalty and retain more customers.

Not far removed is the concept of personalised risk assessment. Pulleyblank said that, until now, it had been very difficult to quantify, reduce and hedge against risk, but underwriting to reflect an individual's characteristics and risk environment, rather than a population's, was now possible.

While this had clear benefits for individuals, Pulleyblank said businesses that used this technology would gain a competitive advantage and reduce costs.

New tools for turbulence ahead
The insurance industry faces a world of dramatically increased uncertainty, both at the macroeconomic level, with threats to entire nations and global supply chains, and at the microeconomic level.

So said renowned futurist and author, Alvin Toffler, talking about the future of the insurance industry.

This was because the world had entered a third wave, post-industrial age economy dominated by a "knowledge-centred" wealth creation system.

This meant not only the "demassification" and personalisation of goods and services, like insurance, but also new risks and challenges such as cybercrime and even the theft of personal identities.

Toffler said this environment of higher uncertainty presented insurers with "tremendous opportunities", but they would lose out to other risk providers if they did not develop the tools and products to handle the "high-risk, high-reward" end of the market.

"If insurance companies want to succeed in the turbulent years that lie ahead, they will need to systematically map the way the new economy will impact on them over the life of an average policy and beyond."

He added: "More importantly, they need to identify in advance the often surprising new risks that will inevitably arise from all this turbulence."

Toffler said insurers had to think of policyholders not as uniform members of homogeneous groups, but as individuals with very different sets of life risks.

He said they needed to study key emerging technologies, "pre-identify" the new risks that would come with them, create new financial tools that could help them reduce new risks and design coherent strategies to take advantage of them.

He said change was accelerating, which meant more frequent and faster changes in risk patterns.

"Only the quickest and most adaptive insurers will succeed," he said.

A tour round the stands
In between conference sessions, delegates had the chance to investigate several exhibits set up by the conference sponsors and some of IBM's insurance technology partners.

SAP, a conference sponsor, presented its latest e-business offering for insurers, mySAP Insurance, which it said was its "broadest, most comprehensive, and most integrated e-business solution" to date for the insurance industry. The offering is made up of two parts that combine insurance specific capabilities, like collections, disbursements and claims, with e-business solutions, such as CRM, e-procurement and human resources.

Cisco, another sponsor, presented a mobile office solution designed for companies, like insurers, that have many field workers, while Siebel, the third conference sponsor, showed off the latest incarnation of its e-business application and CRM system, Siebel 7.

The Innovation Group (TiG) presented its newest claims management system which aims to improve "claims effectiveness" over and above "claims efficiency". This, a spokesman from the company said, meant dealing with each claim more quickly and thoroughly to improve customer satisfaction and reduce costs.

CRM specialist Chordiant provided a demonstration of Chordiant 5 - launched last month. Chordiant 5 is designed to enable insurers to make an organisation's resources and services consistent across its branded distribution channels. The result is "a more consistent brand experience that increases customer retention and reduces costs associated with indirect business".

Finally, IBM and Nekema, a US-based e-commerce specialist for general insurers, provided one of the first displays of its new rules management platform. This gives insurers a cost effective means of managing and communicating business rules, such as underwriting criteria or the definition of insurance products.