An IT decision framework for cross-border expansion strategy
29 July 2011
Insurers desiring to expand their activities in a new geography are always faced with the dilemma to choose between different alternatives in terms of policy administration system deployment, which in general are the following: - implementing a new system (here the build vs. buy debate enters into play), or - deploying an existing system already running in one of their entities. Of course both of these alternatives trigger specific choices for instance the buy choice will force insurers to choose between going for a best-of-breed or the package approach. But in general insurers have a good view on these alternatives and tend to identify clearly which decisions imply specific considerations around PAS vendors or IT services vendors selection. On the other hand, I think a majority of insurers forget to consider the big picture prior to making a decision between the two generic alternatives mentioned above. According to me, they just forget the primary value of IT, which consists in enabling insurers gain competitive advantages. Indeed, in many of my conversations with insurers I have noticed that the main elements taken into considerations in such a situation are internal technology issues and seldom related to the competitiveness of their business model. To me there is an important high-level analysis that needs to be performed by insurers prior to making any specific decisions around the implementation of a system when expanding abroad. This framework mixes an analysis of the target market's competitive landscape using the Michael Porter's five forces model and the insurance value chain as shown in the following figure:
Source: Celent adapted from Michael Porter's five forces model This model helps insurers identify key elements that will influence their decision to implement a new solution or deploy an existing solution through critical questions: Can our information system reduce the power of our business partners?: if we take the example of a UK online insurer targeting a continental European market (whose online insurance market is at an early development stage) for instance, considerations around the importance of aggregators play a crucial role. Is it strategically sound to already use a system facilitating communication with aggregators in a market where there are almost none or where aggregators are not that powerful? Can our system help us better compete versus target market rivals?: this question implies specific discussions around the benefits derived from a modern policy administration system for instance. A key related question would be whether time-to-market is as important in the target market as in the insurer's domestic market. Getting back to the example of a UK online insurer desiring to enter the online market in a continental European country, time-to-market might not be as important as it is in the UK. Can our system contribute to reduce customer bargaining power?: are there features we can offer to our target segment of customers in the new market that would prevent them to switch to another insurer or help us acquire more easily new clients? Even though some markets are not as mature as the UK market in terms of online insurance, there are some continental European countries where consumers just like using portals and have all their communications with their insurer streamlined on a single e-platform for instance. Can our system contribute to reduce barriers to entry or increase them for potential new comers on the target market in the future?: often insurers expanding in a new geography try to replicate what has been successful in their domestic market without investigating how this success could become just more than a success but also a clear barrier for other competitors in the target market. IT has its role to play here since it is often an innovation enabler. Can our system help us compete against potential substitute products? bancassurance is an interesting example here. Banks try to sell insurance products that are marketed as investment products and insurers sell investment or saving-types of products that are marketed as insurance products. Even though product types are often the same, the perceived value from customers tend to differ. In this case, a flexible product configuration tool will be important in order to allow an insurer to create innovative products mixing different types of riders for instance in order to counter the bank offering. The interesting thing with this model is it applies to different contexts and situations and I recommend insurers to use it in the frame of brainstorming sessions and high-level strategy discussions when planning an IT alignment programme related to an expansion in a new geography.