For many years, Ernst & Young Consulting's annual global survey on the use of technology in financial services has been an essential aid to anyone wanting to have a clear understanding of their own organisation's position relative to their peers in this important area.
Relaunched under the Cap Gemini Ernst &Young banner as the Special Report of Financial Services, it is even more poignant this year as many organisations are questioning if the dotcom downturn means they can reallocate precious resources to other areas.
There can be no doubt that, in the last few months, the key strategic issue for financial services providers has become the future of all forms of distribution as opposed to the heavy focus on new media as a channel that was the case last year.
This year's survey looks at the views of 130 financial institutions around the world. Globally, 34 of these are insurance companies, as are 15 of the 25 UK institutions interviewed. This must realistically include the bulk of the key players, so the fact that the report is showing significant changes in attitude over the last year reinforces the shift in strategic focus.
When it comes to the primary reason for making-commerce investments, by far the most popular response among UK insurers is to achieve cost savings. Nearly twice as many British organisations give this reason than others in Western Europe, the US or the rest of the world. But while cost savings may be their motivation, reality would appear to be breaking out among insurers, with expectations of the level of savings they can achieve being half those of last year.
There is a clear message that insurers are finding it far more difficult than they had anticipated to get their customers and business partners to use-commerce systems. Worrying though this is, to me, it is far from surprising. You only have to look at the way in which most insurers organise the delivery of services to the IFA market. While they may purport to be assisting the adviser, in practice, in most cases they are really trying to reduce an internal burden on the insurer.
I never cease to be amazed by the number of conversations I have with life office staff who cannot understand why IFAs are not leaping in big numbers to use these new services they have developed. “After all, it would be so much better if things were done this way,” is a typical comment. The question is better for who?
Is it surprising that an increasing number of national IFA firms, having carried out detailed cost-benefit studies are looking to reduce the extent of use of life office extranet facilities or, in some cases, even ban their staff from using them? These firms have recognised that, with every life office building its extranet in a different way, the costs of training staff to use these become awesome.
Equally, the effect of extranet valuation services is to create a process operated entirely by the IFA, requiring no manual intervention at the insurer end. This delivers a valuation that, at best, the IFA can then print and rekey into their own system. Believe it or not, some systems do not even allow a print facility. This is supposed to deliver value to the IFA.
Possibly the most flagrant example of life offices putting their own convenience before delivering value to the IFA was the way in which a handful of insurers talked about the requirement that electronic applications should be prepopulated from back-office systems during the implementation stage of the industry new business project last year.
It is easy to demonstrate the nature of their folly. One IFA insisted that the removal of prepopulation was not acceptable and asked why its technology provider, CMG, built its system with this capability. The IFA, Towry Law, is now well on its way to achieving its stated objective of delivering 80 per cent of its new bond business electronically within the next couple of months. The company accounts for many times more transactions using the industry new business project than all other IFAs put together.
This was a classic case of life office IT departments not wanting to do something as they did not see the benefit for themselves.
Ironically, this could so easily have been avoided. The technology to deal with pre-population between a whole range of different types of systems for IFAs has been around for a long time. Three years ago, I was vigorously campaigning for it to be applied. Those with the power to take decisions over such things decided it was not a priority.
Until there is a fundamental restructure of the way in which the views of the IFA community are taken into account when developing industry services, insurers will never gain the benefit of anything like the full extent of the savings such technology could deliver to them.
This is just one example of the way in which the report makes it clear that many life offices are simply failing to get best value out of their IT investment. A further failing is the lack of suitable business cases or even the ability to understand where the financial benefits will accrue.
Seventy per cent of UK insurers cite customer profitability as their main goal for their investment in customer relationship management systems but only 40 per cent say their CRM will allow them to identify customer profitability.
It would appear that there is now a strong demand for business cases to be produced. However, I am cynical of this, not because such cases are not invaluable – they are – but all too often this is used by IT departments to defer a project they recognise is important but want to avoid getting involved with right now.
Cap Gemini Ernst & Young head of insurance Shaun Crawford says: “Responsibility for building a business case should rest internally within an organisation that is going to be an end-user. It is important that life offices acquire the ability to carry out such analysis themselves rather than expecting others to do it for them.”
Overall, this report is a compelling summary of the state of our market today. Existing Cap Gemini Ernst & Young clients will receive copies by mail. Alternatively, the document can be downloaded from www.cgey.com.
Ian McKenna is a consultant and director of the Financial Technology Research Centre, which works for a wide range of industry organisations, life offices and technology companies, including Microsoft, Assuresoft and The Exchange. He can be contacted by email at firstname.lastname@example.org Tel: 020 7935 2599