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European insurance has traditionally been a static, heavily regulated and domestically focused industry. Throughout most of this century, it has evolved slowly and gradually broadened its scope and size as insurance products cover increasingly diverse areas of risk.

However, it is now witnessing unprecedented change as a result of deregulation, globalisation and the entrance of new players from both European markets and the US.

The industry has been forced to respond to external pressures, which have transformed a once stable and predictable sector into an uncertain, fluctuating, but more dynamic and responsive industry.

The industry has been forced to respond to external pressures, which have transformed a once stable and predictable sector into an uncertain, fluctuating, but more dynamic and responsive industry. This is prompting a wave of consolidation in an attempt to survive through obtaining greater geographical scope and financial mass, thereby providing more value to customers and shareholders. Insurers are realising that they can no longer merely offer a broad product range to a wide customer base. It has become imperative to increase client management skills to retain customers in the medium to longer-term.

Overview of the European insurance market

The European market is suffering from overcapacity, even though there are high concentration levels in many individual countries.

The European market is suffering from overcapacity, even though there are high concentration levels in many individual countries. Countries such as Norway and Finland had 88.6% and 73.4% of their markets controlled by the top five companies in 1997, and although this concentration ratio was much lower in larger countries, the average unweighted ratio for Europe was 54.8%.

However, while insurers are often strong in their domestic markets, few are dominant at the European level. Europe’s largest insurer, Allianz, only obtained 6.5% of total European gross written premiums (GWP) in 1997, followed by AXA-UAP with 5.9%. The other major players only achieved no more than 3% of this market.

Europe is full of small, domestically focused insurers whose survival had been due to the regulatory conditions which limited competition.

At a European level the market is very fragmented. Europe is full of small, domestically focused insurers whose survival had been due to the regulatory conditions which limited competition. Consequentially, the deregulation process which has gradually spread across Europe this decade has been encouraging greater competition, consolidation, and the growth of pan-European insurance. However, due to the growth of new entrants into the market, the total number of insurers has only declined slightly in the last five years, despite high merger and acquisition activity.

Despite consolidation in this sector, the industry still suffers from over-capacity. This is particularly evident in non-life insurance where underwriting results have become increasingly volatile and margins have been consistently low. While the UK has been the most extreme market in this respect, France and Italy also have had poor results in recent years. The effect of deregulation in Germany will continue the trend.

A single European market?

A key instigator of the state of flux in the European insurance industry has been the impact of the EU.

A key instigator of the state of flux in the European insurance industry has been the impact of the EU. The introduction of the Third Life and Non-Life EU directives has allowed home control of foreign subsidiaries, facilitating the current drive for consolidation. More importantly, it has encouraged the deregulation process by allowing companies to be monitored at a group rather than individual product level. Insurers in countries such as Germany, Italy and Switzerland are now regulated by solvency conditions as opposed to individual prices, policy terms and conditions, creating greater freedom and agility in creating new products and prices.

The next major impact from the EU on this industry will be from EMU. Since January, exchange rates in 11 of the EU countries have been fixed to the Ecu, with this currency replacing all of these national currencies by mid-2002. Additionally, those EU countries outside EMU look increasingly likely to join in the near future, with the British government recently announcing preparations to enter as early as 2004.

EMU will have major implications for the insurance industry. In the short term, these will be concentrated on quick fix IT effects as core systems will need converting to deal with dual currencies and meet the new reporting requirements. Additionally, impacts will be felt in the asset management area of insurance as national specific capital constraints are effectively removed. This will lead to further concentration in this sector and heighten the growing requirement for greater funds as size allows lower volatility of investment returns.

In the longer term EMU will have more strategic effects, encouraging insurers to think on a pan-European scale in terms of their customers and products.

In the longer term EMU will have more strategic effects, encouraging insurers to think on a pan-European scale in terms of their customers and products. This is likely to increase cross-border activity and accelerate the consolidation process as the larger players acquire smaller foreign players to establish themselves in non-domestic markets.

Competitive pressures should also intensify as price transparency between member states increases. However, this effect should not be overestimated as prices will still be heavily affected by differing fiscal regimes, combined with regulatory and legal differences. Its greatest impact will therefore be concentrated on corporate customers who operate on a European or larger scale and can take advantage of differing prices across Europe, particularly with the removal of exchange rate risk.

Expansion, globalisation and diversification

The insurance industry has developed a need for scale which is seen as necessary to survive in an industry where the numbers of players is decreasing.

EMU will be a driver for European expansion, though insurers have already been attempting to increase the scale of their reach both in terms of their geographical presence and through the breadth of their offerings. The insurance industry has developed a need for scale which is seen as necessary to survive in an industry where the numbers of players is decreasing.

The desire for size is partly justified in terms of business logic. The financial services industry as a whole is being affected by globalisation with globally orientated customers increasingly demanding financial services providers which are able to offer a comparable world-wide service. However, few insurers have truly global coverage and this reason does not currently provide sufficient advantage to justify this desire for size. For many, this has been prompted more by the expansion of many US insurers into Europe, as companies (such as AIG) seek more lucrative markets outside the US.

This desire for size is also based upon the stability mass allows by reducing volatility of results (potentially!). The current surge in competition has increased this volatility by accentuating price pressures. Greater geographical reach and diversification across different markets allows more stable results through spreading risk. This has become necessary as stable results have become a prerequisite in Europe’s fickle capital markets for obtaining more consistent valuations, allowing higher future access to capital.

Increased competition has raised the costs of acquiring new customers and insurers have realised that cross-selling new products to existing ones is often a more effective method of increasing revenues and margins.

This drive for geographical reach has been combined with diversification into new markets. Increased competition has raised the costs of acquiring new customers and insurers have realised that cross-selling new products to existing customers is often a more effective method of increasing revenues and margins. This has occurred across insurance product lines, with non-life insurers moving into life insurance and vice versa. Many recent mergers (such as Royal and SunAlliance, CGU plc) have had this reasoning behind them. The extension of their customer bases presents them with the opportunity to cross-sell existing products to these newly acquired customers.

Viewing the huge success banks have had entering into the insurance market, insurers have started to offer banking products, attempting to leverage their asset and risk management skills and utilise their direct channel experience.

Additionally, insurers are diversifying outside their traditional sectors, following the convergence trends within the financial services industry. Viewing the huge success banks have had entering into the insurance market, insurers have started to offer banking products, attempting to leverage their asset and risk management skills and utilise their direct channel experience. This has been most prevalent in the UK, with insurers such as Prudential and Scottish Widows starting up their own banking operations. In Europe, this has predominantly occurred through the formation of alliances and mergers to create “one-stop-shop” financial supermarkets (a driver behind the merger of Credit Suisse and Winterthur in 1997).

The need for value creation

It is not enough to bring together two disparate groups and expect economies of scale. The two units must have complementary factors, and additionally must be easily integrated from the point of view of IT, customers and distribution.

The desire for growth has for some insurers become an end in itself. The wave of consolidation has driven some insurers to embark on expansion programmes which are not necessarily strategically sound. It is not enough to bring together two disparate groups and expect economies of scale. The two units must have complementary factors, and additionally must be easily integrated from the point of view of IT, customers and distribution.

Insurers must be able to provide performance to create value for both customers and shareholders. This is not necessarily achieved by offering a broad product range to a wide customer base. Attempting to derive value through diversification and expansion, rather than through consolidation and niche development, does not account for marked differences between insurers’ business strengths.

A single-minded pursuit of growth overlooks the need to ensure strong returns to shareholders (policyholders in the case of mutuals) via increases in earnings and thus higher dividend payments, rather than aiming for pure maximisation of market share. It is not necessarily the case that an increase in market share will lead to increased profits. Indeed, in many cases acquisition costs can substantially outweigh likely future returns.

Insurers will rarely be able to add value by expanding outside their core business through diversification unless they are able to export expertise upon having reached critical mass in their core business.

Insurers will rarely be able to add value by expanding outside their core business through diversification unless they are able to export expertise upon having reached critical mass in their core business. However, some insurers, such as Generalli, have been able to add genuine value by building a European position in their sector, as a means to combat unfavourable economic or claims conditions.

Overall success will be determined by factors such as strength in domestic markets, combined with a highly focused business strategy and the ability to excel in the core insurance competencies of risk management and customer segmentation.

The conditions for creating value will therefore depend on both size and performance. Overall success will be determined by factors such as strength in domestic markets, combined with a highly focused business strategy and the ability to excel in the core insurance competencies of risk management and customer segmentation. However, actuarial skills alone are not sufficient for survival as companies must develop expertise in investment, marketing, customer retention and segmentation, as well as product distribution.

On top of this, insurers must have the ability to aggressively control costs. Rapid restructuring, better expense management through IT implementation and reduction in labour costs are paramount in this process. Norwich Union in the UK, for example, has recently implemented a consistent IT strategy across the whole company. The main aim is to co-ordinate investment management, fund management, pension funds, life insurance and mutual funds using a combination of data warehousing and Intranet technology.

As a result, it is possible to define the areas in which insurers must not only be competent, but also able to outperform competitors. It is only by addressing these components that insurers can truly add value to their clients. In insurance, these areas are:

· developing underwriting sophistication;

· product development and diversification;

· management of distribution systems;

· investment management expertise;

· ability to deal with the IT and strategic issues of EMU.

Developing underwriting expertise

In general insurance, a key success factor is the ability to control claims. This is achieved by the development of strong risk management techniques to accurately evaluate risk and effectively segment customer groups.

In general insurance, a key success factor is the ability to control claims. This is achieved by the development of strong risk management techniques to accurately evaluate risk and effectively segment customer groups. The importance of these abilities has increased due to the evolution of more volatile underwriting cycles which has and is causing fluctuations in results and consequently profitability. As mentioned, maintaining a steady level of returns is essential for improving shareholder value, which is necessary for gaining future access to capital.

European insurance markets can be understood in terms of the underwriting cycle. As insurance develops in a market, competitors begin to underwrite a greater variety of risks which causes claims to rise. As a result, profitability declines, resulting in some players exiting the market. As competition declines, profitability increases as insurers increase premiums to regain previous losses, thus markets become more attractive and capital and investment increase. Hence insurers are once again forced to lower premiums and accept more risky clients. As a result, claims rise, forcing the cycle to begin once more. Underwriting cycles are more severe in the UK and the Netherlands since these are the most deregulated markets and are also broker‑dominated.

In Europe, while each market in underwriting terms is out of phase with the other markets, it is generally the case that all European insurers have faced tough market conditions caused by over-capacity in recent years. This is leading to low levels of profitability, particularly in motor insurance where competition has increased through the popularity of low-cost direct distribution.

In the UK, the long-deregulated reference market, underwriting has been extremely difficult since 1994 and is likely to remain at a low level in the next few years.

In the UK, the long-deregulated reference market, underwriting has been extremely difficult since 1994 and is likely to remain at a low level in the next few years. The market has a large number of large-scale suppliers but many of the major players have seen their market shares fall as a result of low‑cost new entrants, particularly in the teleinsurance market for motor and property insurance lines.

Indeed, it is the volatility of underwriting results in the market as a whole which makes it difficult to foresee future profitability. This, in turn, has detrimental effects for the balance sheet of insurance companies, causing significant fluctuations in the technical account, and reduces the attractiveness of such companies to shareholders. The main causes of such volatility are the increased freedom to set prices, almost non-existent barriers to entry in the UK, tight accounting regulations which forbid claims equalisation reserves and a traditionally high exposure in the market.

The German market, in contrast, has been the most stable European market due to strict regulations governing pricing structures which led to low-intensity competition.

The German market, in contrast, has been the most stable European market due to strict regulations governing pricing structures which led to low-intensity competition. However, following the easing of barriers to foreign entrants and price deregulation, volatility is expected to increase, particularly in motor insurance as direct channels play an increasing role in distribution. These fluctuations, however, are unlikely to be as pronounced as in the UK due to the ability to smooth results using balance sheet measures.

France, on the other hand, has had fluctuating underwriting results similar to the UK, although this has been hidden to an extent by balance sheet adjustments to smooth results. This fluctuation has been prompted by deregulation which has reduced concentration levels substantially, with many small companies experiencing high growth in both life and general sectors at the expense of the state-led giants, GAN and AGF. This has been achieved through niche focusing with specialised groups, such as Groupe Athèna and Groupama, profiting from lower loss ratios and the ability to exploit niches through innovative product offerings. Similarly, Italy has been experiencing negative returns in its general sector in recent years, although the trend has been upwards. The once stagnant competition in this market has started to intensify due to removal of regulation regarding minimum prices for policies. This will continue as low-cost direct channels grow in popularity. Unlike Germany and France, many Italian insurers are ill placed to deal with this due to the absence of both sophisticated customer data sets and the IT abilities to develop strong customer segmentation and risk management techniques. Thus it is likely there will be a renewed interest in this market amongst foreign insurers, such as Allianz, which are able to utilise more advanced IT systems to penetrate the profitable segments.

As discussed, increased freedom in Europe has increased competition considerably, primarily through the entrance of direct distribution channels which reduce overheads and therefore expense ratios. As a result, prices in commoditised insurance lines such as motor and property will decline in the short‑term. This has been seen in the UK where deregulation occurred earlier than in the rest of Europe. This reduction in prices is a short-term solution for insurers who have not developed sufficient expertise to underwrite risk selectively. Indeed, the resulting decline in profitability which is occurring is driving much of the consolidation taking place in UK non‑life insurance.

As pricing continues to become more competitive in both life and non-life insurance sectors across Europe, successful companies will become better risk selectors, establishing niche customer groups.

As pricing continues to become more competitive in both life and non-life insurance sectors across Europe, successful companies will become better risk selectors, establishing niche customer groups. Or, if the group has sufficient global reach, it will implement measures to reduce expenses through better distribution and diversification into other financial services sectors, such as asset management.

Product development and diversification

As the underwriting environment in almost all European insurance markets deteriorates, it has become increasingly important for competitors to develop tailored products and services as a means to retain customers.

As the underwriting environment in almost all European insurance markets deteriorates, it has become increasingly important for competitors to develop tailored products and services as a means to retain customers. This is leading to diversification into new business areas and is also causing insurers and banks to develop more complex and sophisticated vehicles, particularly in the life insurance sector. Likewise, in non‑life insurance, increased service and additional product features are being used to retain customers as well as attract those of rival competitors.

The maturity reached in many financial services markets, particularly in non-life insurance, is forcing competitors to capture market share from each other in order to achieve revenue growth. However, as price is still the key factor affecting customer decision, insurers are having to offer increased services and product ranges in an attempt to distinguish themselves and maintain market share.

In life insurance, product development has become increasingly essential due to the high success banks have had in moving into this sector.

In life insurance, product development has become increasingly essential due to the high success banks have had in moving into this sector. This has been based upon the natural synergies between traditional bank deposits and insurance based savings plans and the cost advantages obtained from using branch networks for distribution.

This success has been based chiefly around the distribution of simple life insurance products, in order to minimise the selling effort required by bank branch staff. European bancassurers have been forced to spend significant proportions of their budget on training staff in order to familiarise them with insurance products.

It has therefore been essential to minimise further confusion which would augment training costs substantially. Moreover, complex, tailored products would require individual experts in each branch and make these ventures even more costly.

Traditional life insurers therefore have the opportunity to counter the threat imposed by bancassurers by offering tailored products, which are more complex and sophisticated, based upon their stronger underwriting expertise and trained sales forces.

For example, a key area of growth in this area in recent years has been that of unit-linked policies, particularly in the more deregulated countries such as the UK and Netherlands where there has been a strong run in the equity market. In contrast to traditional with-profit policies, offering a guaranteed return with a bonus, unit-linked policies offer a potentially higher, but uncertain return. In this case the insurer makes money from commission charged, instead on the difference between interest received and returns given to policyholders. This offers a lower, but less volatile, source of income as the customer accepts a greater proportion of the policy risk.

Product development is still heavily dependent on tax incentives, led predominately by the fiscal status of each European market. Insurers therefore have a strong interest to base their products around these incentives, in order to market the higher returns to policyholders.

However, product development is still heavily dependent on tax incentives, led predominately by the fiscal status of each European market. Most European countries offer some form of tax incentive, mainly to encourage savings for old age as governments start to worry about the demographic shift. Insurers therefore have a strong interest to base their products around these incentives, in order to market the higher returns to policyholders.

Thus the UK, with life assurance premiums relief removed in 1984, has moved more strongly towards the unit-linked policies, particularly with the tax incentives around PEP products. In contrast, France gives up to 25% of the life insurance premium price as tax deductible, which has been a strong factor behind the success of bancassurance as banks have packaged life insurance with saving vehicles previously offered to customers.

However, despite a strong effect of tax incentives on product development and as a consequence cross-country activity, innovative product development is now realising new opportunities, even in traditionally the most heavily regulated markets. In Germany, for example, Scottish Amicable International launched a Plan for Life (a unit-linked whole of life protection plan with critical illness and savings plan modules) in October 1995. The product is distributed through networks of independent intermediaries as it is felt that they offer the best access to the chosen customer target group, with local competitors too slow to respond. Indeed, another foreign-owned company, AXA Leben, was the first to respond with a new product of its own, revamping a critical illness product. Product innovation is more important in markets where brokers have traditionally played an important role, for example the UK, Netherlands and Ireland.

The EU could potentially have a large impact on this area, when tax harmonisation reduces the effect of these tax incentives across Europe. In terms of product development, this will move insurers away from a product orientated approach to a customer centric approach. Products will become increasingly tailored to customer requirements, as product development will be based upon meeting the needs of identified customer niches rather than around tax incentives.

Product diversification in non-life insurance

In many European countries, particularly the UK and Netherlands, the success of direct insurance in general insurance has caused strong price competition and placed heavy downward pressure on prices. To provide these low prices, the direct insurers produced simplified and non-specific product offerings to limit costs. Consequently commoditisation of many types of insurance occurred, particularly motor and property insurance.

As consumers have become more at ease with the concept of direct insurance, they have come to expect lower prices as standard.

However, as consumers have become more at ease with the concept of direct insurance, they have come to expect lower prices as standard. Thus, while price is still the most significant factor affecting the decision to purchase insurance, the growth of low-cost insurance means price is no longer a significant source of competitive advantage.

An additional impact of direct insurance has been to increase customer switching, with customer churn rates in these commoditised insurance lines rising rapidly in recent years.

An additional impact of direct insurance has been to increase customer switching, with customer churn rates in these commoditised insurance lines rising rapidly in recent years. Churn rates are as high as 34% for motor insurance in the UK. Strong marketing initiatives enticing the customer to move to lost-cost insurance have encouraged customers to be more price sensitive and also reduced customer inertia, due to the ease of acquiring policies through direct distribution methods.

Insurers are now attempting to distinguish themselves from their competitors by increasing their levels of service and offering additional product features.

Therefore, insurers are now attempting to distinguish themselves from their competitors by increasing their levels of service and offering additional product features, such as protected no-claims bonuses, courtesy cars, valet cleaning and the insurer taking the onus for completing the claims process away from the customer. Customer switching occurs more frequently after a customer has made a claim and as a consequence, increased customer satisfaction at the time of claim can reduce customer churn rates.

The key to success now lies in the ability of insurers to distinguish themselves and consequently create a strong brand. Insurers need to be perceived as low cost and high service providers in order to reduce customer switching and make customer acquisition more effective.

The importance of brand has also become a key factor in the trend of product diversification that many insurers have embarked upon.

The importance of brand has also become a key factor in the trend of product diversification that many insurers have embarked upon. The poor returns suffered in the general insurance sector has encouraged many insurers to diversify outside their core sectors into life insurance because of the high returns achieved in recent years.

Many insurers, such as Direct Line, have moved into this market based on brand strength, although because of problems associated with underwriting life policies, this has been achieved by offering very simple life products. Insurers have also circumvented this problem through merger activity to access substantial life customers and underwriting expertise (e.g. CGU or Royal and SunAlliance) or by developing networks for cross selling opportunities (e.g. Credit Suisse and Winterthur).

Insurers have been attempting to use their brand and customer databases from their core lines of insurance to cross sell into new product areas.

This movement into life insurance reflects the underlying diversification trend across all product lines in insurance. Insurers have realised that it is generally more effective to increase the profitability of existing customers than it is to acquire new ones which, as mentioned, requires very competitive prices. Thus insurers have been attempting to use their brand and customer databases from their core lines of insurance to cross sell into new product areas.

This allows an insurer to offer a fuller range of products to their customers and so move towards the “one-stop shop” financial supermarket. This is supposed to enable higher customer service as the customer does not need to shop around, but more importantly, diversification allows expansion, growth and a potential increased stability of results which has been deemed vital for increasing shareholder value.

Moving into a new market will not necessarily improve shareholder value unless expertise can be exported into the market to provide a competitive advantage.

However, increased breadth needs to be accompanied with increased depth and insurers must be able to provide a high quality of product offerings and service across all of their markets. Moving into a new market will not necessarily improve shareholder value unless expertise can be exported into the market to provide a competitive advantage. If an insurer is unable to operate successfully in a new market, value could be destroyed not just because of the loss of any investment, but also due to brand damage affecting its core markets.

Insurers must not spread their operations too thinly, both in terms of geographical or sectoral coverage. Low market share in several markets will not add as much value as strong market share in fewer markets. Insurers should have a point of strategic control in either their domestic market or core product market before diversifying or expanding into new markets.

Insurance distribution - the changing mix

The effect of regulation has forced insurers to re-think their strategies with regard to product development and offerings. In turn, this has led to a need to rethink distribution policy.

The introduction of teleinsurers, banks and retail institutions into the market has caused traditional insurers to assess the costs and therefore the underlying profitability of existing channel management.

Traditionally, insurers have used one distribution channel for all products. Tied‑agents, for examples, have dominated in France and Germany while brokers have remained important in the UK. However, the introduction of teleinsurers, banks and retail institutions into the market has caused traditional insurers to assess the costs and therefore the underlying profitability of existing channel management. Likewise many have also wanted to broaden their product range and customer base, for which their existing distribution structures were not necessarily adequate.

The major changes to distribution have been forced upon insurers rather than based on strategic planning. The first major change has come from the impact of bancassurance, the second from the success of direct insurance. The third impact is a consequence of the first two, that being the need for multi-channel management.

The impact of bancassurance

The primary reason for the success of bancassurance has been the natural synergies between life insurance products and banks’ traditional saving vehicles.

As mentioned previously, the primary reason for the success of bancassurance has been the natural synergies between life insurance products and banks’ traditional saving vehicles. This, combined with the breadth of bank distribution networks (allowing direct customer contact), the presence of existing customers and strong brands, has enabled bancassurance to enjoy rapid growth this decade. The success of bancassurance has been most notable in Portugal, Spain and France and it is currently developing quickly in Scandinavia, due to recent favourable taxation for capitalisation products. Similarly, it is likely to expand rapidly in Greece due to removal of regulatory constraints and in Switzerland, as UBS and Credit Suisse look to expand their operations into this area.

In contrast, its penetration has been much lower in the UK. This has been due to the greater importance of the pension market over life insurance. There are less obvious synergies between banks and pension provision than with life insurance. This has been combined with the inability of banks to persuade consumers that life insurance is simple enough to be sold, pre-packaged, over the counter.

Similarly, full non-life bancassurance remains rare in Europe with most banks reluctant to establish comprehensive bancassurance captives in this area, although many offer this insurance as an intermediary. This is due to the small revenue streams generated by personal lines compared to life business, together with the greater investment in IT and training required because of the lower synergies involved. Thus the cost advantage over traditional insurers is much lower.

Additionally, the strong success of direct insurance in this market has made it even more difficult to gain a price advantage. However, selling property insurance as an intermediary based on synergies from mortgages can be extremely profitable. Ironically, banks in the UK are relatively successful property insurance intermediaries, despite the lack of life bancassurance.

The growth of direct insurance

In contrast to the success of bancassurance in the life insurance sector, direct insurance, particularly through teleinsurance, continues to experience high growth in the general insurance sector.

In contrast to the success of bancassurance in the life insurance sector, direct insurance, particularly through teleinsurance, continues to experience high growth in the general insurance sector. Like bancassurance this success has differed across Europe, with highest penetration rates achieved in Northern Europe, particularly Sweden and the Netherlands, while take-up has been distinctly low in the Germanic regions.

The introduction of direct selling was led by Centraal Beheer in the Netherlands, which used the telephone as a means to attract customers. Direct Line quickly followed in the UK, as a result of which insurance selling and underwriting became available through this channel. Initially, competitors were able to attract customers by increased brand awareness together with the low-price and ease of delivery which could be offered through the removal of expensive intermediaries.

The greatest impact of direct insurance has been in commodity type products, such as motor and property insurance.

The greatest impact of direct insurance has been in commodity type products, such as motor and property insurance. This is due to the customers perception of the product as simple and willingness to accept insurance without consulting an expert. Additionally, direct insurers rely on the customer contacting them, so the product must be easily identifiable.

The success of direct insurance has been more limited, apart from in the Netherlands and some Scandinavian countries where customers are culturally used to dealing over the telephone. Insurers such as Virgin rely heavily on their brand and reputation for customers to purchase simplified versions of more complex products.

The impact of direct insurance has been much lower in the Germanic and Southern European regions. This limited development is partly cultural, with face-to-face contact being important, but also partly regulatory, such as in Germany where insurers could not set policy prices and thus direct insurers could not undercut. The removal of many of these regulatory constraints in recent years means that strong growth of this channel is expected over the next five years.

While direct insurers are able to attract customers through lower price points, retention and maintenance of stable market share is more difficult to establish.

However, while direct insurers are able to attract customers through lower price points, retention and maintenance of stable market share is more difficult to establish. As mentioned, the impact of greater marketing by direct insurers has increased consumer awareness and reduced customer loyalty to their existing insurer. Thus, high levels of quality and service, as well as price, are the key factors in retaining customers over time.

Key conditions for continued success in teleinsurance will therefore be based around risk assessment and pricing control as marketing activities cannot sustain performance in the longer-term without strong underwriting expertise.

The ability to gather and manage information which enables ongoing development and identification of customer profiles is the key to future niche operations as a means to manage risk more successfully.

The ability to gather and manage information which enables ongoing development and identification of customer profiles is the key to future niche operations as a means to manage risk more successfully. This flexibility will provide significant competitive advantage as competition increases further and pricing structures come under pressure. Examples of such strategies include AIG, through its subsidiary Landmark Express, targeting drivers over 50 to reduce risk, and Admiral, which has gathered extensive data on London, enabling them to set prices accurately and minimise risk accordingly.

The response of the broker channel

The impact of the success of both bancassurance and direct insurance has been felt strongest on the traditional intermediary distribution channels, such as brokers and tied-agents.

The impact of the success of both bancassurance and direct insurance has been felt strongest on the traditional intermediary distribution channels, such as brokers and tied-agents. The adoption of new technologies allowing more efficient processing and lower administration costs initially gave these new channels a substantial cost advantage. Additionally, the smaller size and geographical scope of brokers meant they were unable to compete in terms of scale with the strong marketing push by the larger direct insurers or have the customer contact opportunities that branch networks provide.

The rapidly declining market share has caused consolidation in the broker industry with the formation of large broker networks with comparable reach to the banks.

However, while these initial advantages enjoyed by these new channels allowed their consequent high penetration into the insurance market, the broker market has since responded. The rapidly declining market share has caused consolidation in the broker industry with the formation of large broker networks with comparable reach to the banks. Additionally, the technology gap between brokers and direct insurers has declined as IT costs have fallen and brokers have been able to adopt new technologies.

As the broker market has responded to the competitive pressures, direct insurers have realised the need to regain links with the intermediary channel. This allows the insurers to market products with increased customer service, due to the face-to-face element provided by the broker channel. For the broker, partnerships can help limit erosion of market share and may allow funding from the insurer for IT systems enabling more efficient processing and EDI link-ups.

However, the broker lays charge to the claim of providing impartial advice and differing levels of commission between insurers could constitute a conflict of interest. Additionally, the benefit of partnerships are limited to life products and the more complex general insurance products, where customers are more willing to pay a premium for more personal advice.

Multi-channel management

The movement by direct insurers back towards the use of intermediaries and the realisation by most traditional insurers that they need a direct as well as traditional distribution has created a major challenge for insurers. They are now having to deal with customers through several channels and this presents significant challenges in presenting a consistent front to the customer and dealing with pricing issues for each channel.

Multi-channel management creates a strong business problem as conflict will arise if the same product is sold to the same customer from different channels.

Multi-channel management creates a strong business problem as conflict will arise if the same product is sold to the same customer from different channels. If channels are remunerated independently, they will effectively be in competition with each other and thus unlikely to co-operate in the sharing of customer information or cross-selling leads. This will result in lower customer service and loss of potential sales.

To maximise the benefits of multiple channels, there needs to be a co-operative strategy between channels.

These conflicts can be reduced by careful demarcation of products and customer segments between channels to clearly define and manage the roles of each channel in the distribution process. However, to maximise the benefits of multiple channels, there needs to be a co-operative strategy between channels, in particular salesforces, intermediaries, and direct channels based on:

· information sharing;

· flexibility;

· creating long-term relationships;

· clear customer segmentation;

· competitive commissions to promote long-term loyalty of intermediaries.

In addition to the business problems, information sharing between channels requires integration of customer databases and technology between channels.

The need for asset management expertise

Competition and deregulation means product development capabilities in the back office are essential. The front office has also been affected, with the use of multiple distribution channels. Similarly, these drivers are causing high growth in middle office activity as customer analysis and risk management become essential for long-term success.

An additional area of insurance that has been affected lies in the investment management element of insurance. This is particularly important in life insurance, where a shift towards equity based products has made obtaining high investment returns essential.

The life insurance market has been growing strongly throughout most of Europe, particularly in the southern countries. This is being driven by demographic pressures, forcing governments to encourage private provision for retirement.

However, this trend has also placed a strong competitive pressure upon life insurers, due to the impact of mutual funds. These are currently only popular in a few European markets such as the UK and France, but high growth is expected across Europe in the next five years, particularly in Sweden and Switzerland due to aggressive marketing from strong players.

Mutual funds offer an opportunity for life insurers if they can develop unit-linked life insurance products. However, their growth is also a threat.

Mutual funds offer an opportunity for life insurers if they can develop unit-linked life insurance products. However, their growth is also a threat. Many customers use these funds for medium term investments and their uptake has been high with the younger generation, where the need for life insurance is not always deemed as urgent.

The demand for these funds is strongly linked to the performance of the equity markets, correlating highly with rapid growth in these markets this decade. Consequently, recent volatility in the global markets may reduce the rate of growth of unit funds. Additionally, lower interest rates and comparisons with the US suggest that the high growth (over 20%) seen in Europe in recent years is not sustainable in the long term.

However, in addition to the threat from traditional fund management operations, banks are also increasing their presence in this arena. This is particularly true for global banking groups such as Deutsche Bank, Zurich and ABN AMRO, as well as smaller institutions like Société Générale who have moved to purchase asset management and investment banking functions.

So far, this greater competition has generally been from domestic players due to regulations around this area of the economy. The UK is the most open economy in this respect with 25% of funds managed by foreign companies in 1998. However, EMU will have a significant impact in this area by eliminating exchange risk and blurring the distinction between foreign and domestic investment. This is likely to lead to a reduction in regulations concerning investment restrictions and an increase in equity diversification across Europe.

Insurers will have to obtain a critical mass of investment funds, minimising risk through diversification and cutting transaction costs, thereby increasing returns.

The key effects on the insurance industry will be that competitive pressures in this field will increase and consequently the need to produce high and stable returns will grow. As such, insurers will have to obtain a critical mass of investment funds, minimising risk through diversification and cutting transaction costs, thereby increasing returns.

It may therefore be beneficial to offer third party asset management facilities to non-insurance clients. This has become increasingly common with the larger European insurers such as AXA-UAP, Winterthur, Zurich and ING, all of which have sufficient funds to gain competitive economies of scale.

In contrast, smaller insurers must decide whether to continue asset management functions in-house or to outsource to a larger player. This will be increasingly common as consolidation in the sector continues and the smaller players become less able to offer competitive returns.

The trend will intensify as US players continue to move into Europe in order to diversify their risk and take advantage of their size and asset management expertise in a deregulating market. Similarly, this is encouraging many of the larger European players, such as AXA-UAP and ING, to move into the US to diversify their risk and also to establish themselves as global players in the financial services industry.

It will be crucial to develop expertise to manage third party funds and develop expertise in the equity market where many insurers have previously been restricted due to regulations.

In the future, consolidation in the industry will occur and insurance companies must decide whether to outsource their asset management operations or expand to reach a critical size in terms of funds managed and geography. To this end it will be crucial to develop expertise to manage third party funds and develop expertise in the equity market where many insurers have previously been restricted due to regulations.

Insurance Technology

The IT infrastructures of large composite insurers are categorised by the presence of large-scale, batch oriented, core processing environments.

The IT infrastructures of large composite insurers are categorised by the presence of large-scale, batch oriented, core processing environments. Insurers were amongst the first users of mainframe computing when it was introduced in the 1960s. The shear scale of processing requirements was an ideal fit for mainframe applications.

Today, these environments remain. In fact, the demand for processing power has increased (policy information must be retained, even when the policy expires. A typical insurer can have 20 million records, of which only 8 million are ‘live’). The predicted death of the mainframe for high volume, transaction based processing has been proved wrong. Hence, the effective use of modern computing technologies in the insurance sector is a complex challenge.

Core systems

Product support and core processing systems are the backbone of the established insurer. Legacy systems remain the biggest IT concern of these companies, which have the largest asset base of the insurance sector.

Product support and core processing systems are the backbone of the established insurer. Legacy systems remain the biggest IT concern of these companies, which have the largest asset base of the insurance sector. There is interaction in this area with external organisations such as actuaries and independent claims adjusters. The back office in IT terms is dominated by batch processing applications used for policy administration and settlement.

New entrants need flexible and scalable systems, rather than large, cumbersome applications.

New entrants to the sector do not have the same core systems issues. New entrants need flexible and scalable systems, rather than large, cumbersome applications. Core IT systems have, in fact, become a strong driver for the choice to build separate businesses rather than integrate with existing applications. Indeed, many new entrants have been driven by the need for flexible systems.

Insurers are striving to implement ‘customer centric’ business models. The cohesion of the heterogeneous IT environment described above is critical for this to be achieved. Accessing valuable legacy applications is having a profound effect on the use of new technologies. Increasingly, internet technologies are being used for this (the Ohio Casualty Group, for example) which connects its sales force to a series of legacy applications using an internet based layer.

Customer Information Systems

Customer Information Systems should provide fluidity between product support, customer service and business development.

In the insurance sector, the use of customer information is balanced between product support and customer profitability analysis. Customer Information Systems should provide fluidity between product support, customer service and business development. To this end, IT systems are oriented around manipulation and dissemination of information to both the channel and marketing areas.

With the growing implementation of independent departmental systems, redundant and inconsistent data led to inaccurate analyses. The data warehouse solved this problem by amalgamating data from a wide range of functions.

The development of the data warehouse has enabled companies to consolidate customer information and use it to improve competitive advantage. Before the practical application of a data warehouse was possible, organisations built business decision-making systems designed to assist specific departments, such as marketing. With the growing implementation of independent departmental systems, redundant and inconsistent data led to inaccurate analyses. The data warehouse solved this problem by amalgamating data from a wide range of functions. This allows collection of more accurate and complete information.

The insurance sector is particularly suited to the use of data warehouses by virtue of its large customer base and complex product profile. Despite some early problems with implementing data warehouses, as experienced by most sectors, insurers are now having more success.

Client-server databases continue to ship high volumes, primarily to support the roll out of new applications. Insurers have come to rely on such databases for increasingly demanding applications and a growing number of concurrent users. The principal areas of client server database growth are in the middle office, in the regions of Management Information Systems (MIS) and product development environments.

Management Information Systems

Insurers of all sizes are striving to control channels, so the distribution of information around the enterprise is critical.

The complexity of distribution channels makes the deployment of management information systems a critical IT challenge. Insurers of all sizes are striving to control channels, so the distribution of information around the enterprise is critical. To meet this challenge a range of technologies are being employed.

The two types of management information are at a strategic and tactical level. Strategic level information is used for marketing, with data warehousing a key technology. The emerging area of development is at a tactical level, with insurers seeking more control over the operation.

Product development environments

Modern application development techniques involve the re-use of business objects to help build applications more quickly.

Rapid time to market has put increased pressure on product development methodologies in all vertical markets. In the sector, this demand is exaggerated by the individuality of products. Modern application development techniques involve the re-use of business objects to help build applications more quickly. By re-using predefined business logic, insurers can assemble new, tailored products more rapidly, hence increasing customer satisfaction and reducing development costs.

A large UK insurer approached application development with its Strategic Build Programme, combining systems for Quotation, Product & Underwriting and Customer Contracting. The core goals of this project were to:

· create new applications within an ‘architectural framework’;

· give business users increased control and flexibility;

· support product and organisational independence;

· reduce development costs and timescales;

· minimise maintenance load and cost;

· produce systems which meet business requirements and provide technical robustness.

Rapid development technologies are particularly popular amongst medium sized composite insurers. Product developers have an intuitive building tool with which they can roll out individual products, while at the same time re-using pre-built business logic.

Distribution channel technologies

Insurers are faced with the challenge of managing non-tied agents and independent brokers and must develop IT systems which allow effective product and customer management through different users.

The distribution channel dynamics of the insurance sector are very different from those of banking. Insurers are faced with the challenge of managing non-tied agents and independent brokers and must develop IT systems which allow effective product and customer management through different users.

In technology terms, the front office is the best example of a multiple technology environment. Increasingly, front office business strategies have been driven by technology rather than supported by it. Call centre technologies and the internet continue to force fundamental questions about the business strategy of insurance companies.

Summary and conclusions

European insurance is emerging out of a transformation period which will result in substantial consolidation within the industry. This will lead to the polarisation of the industry with the creation of very large pan-European insurers at one end of the scale and small, niche players at the other. Medium sized operations will be squeezed out of the market unless they can create substantial value for their shareholders and customers.

To survive, insurers will have to create value. As discussed, this is not necessarily achieved by offering a broad range of products to a wide customer base. Insurers must focus on their core competencies and expand from positions of strength and strategic control. However, in the long-term, insurers will need to offer both breadth and performance based upon a strong domestic foundation and significant non-domestic positions, combined with expertise in actuarial, risk management and asset management functions.

Successful insurers will be those who can gain competitive advantage through their IT to improve their control over costs, customer service and their ability to offer and cross-sell a broad range of products to a large, but targeted customer base.

An essential element of value creation will be the ability to competently manage and utilise the benefits IT offers. Technology has become an integral part of the insurance process, rather than just a support factor. Consequently, successful insurers will be those who can gain competitive advantage through their IT to improve their control over costs, customer service and their ability to offer and cross-sell a broad range of products to a large, but targeted customer base.

PART II: TECHNOLOGY SOLUTIONS

Introduction

Microsoft recognises that the insurance industry, like many other parts of the financial services industry, is going through big changes in working practices caused by various factors.

Business and technical decision makers are faced with many choices that will affect both the short and long term profitability of the business. To make these decisions easier, Microsoft has developed a clear strategy.

Microsoft's goal is to provide the technology platform, Windows, that will enable financial institutions to develop and deploy solutions in a cost effective and timely manner.

Microsoft's goal is to provide the technology platform, Windows, that will enable financial institutions to develop and deploy solutions in a cost effective and timely manner. Building upon this solid platform, the vertical line-of-business applications will be provided either through the IT departments of the financial institutions themselves or through third party suppliers.

Technology has to address the key needs of the insurance industry:

· to integrate and inter-operate with the core processing systems that exist within insurance companies;

· to manipulate and disseminate vital product information and customer data, to the delivery channels;

· to provide new, innovative solutions to the channels in a time and cost efficient manner, that allows reuse of existing business functionality.

Core Technologies

Microsoft Windows DNA

Microsoft has created a framework called Windows Distributed interNet Applications Architecture (DNA) that enables businesses to more easily build new systems that take advantage of the capabilities of the personal computer and the opportunities presented by the internet, whilst integrating with existing systems.

Windows DNA provides an interoperability framework based on open protocols and published interfaces that allow customers to extend existing systems with new functionality.

Windows DNA integrates the personal computer standard, the internet and legacy infrastructures by enabling computers to inter-operate and co-operate equally well across both corporate and public networks. Windows DNA provides an interoperability framework based on open protocols and published interfaces that allow customers to extend existing systems with new functionality. This same open model provides extensibility ‘hooks’, so third parties can realise new business opportunities by creating compatible products that extend the architecture.

The heart of Windows DNA is the integration of the internet and client/server application development models through a common object model – the Microsoft Component Object Model (COM).

Windows DNA applications use a standard set of Windows-based services that address the requirements of all tiers of modern distributed applications - user interface and navigation, business processes, and data storage. The heart of Windows DNA is the integration of the internet and client/server application development models through a common object model – the Microsoft Component Object Model (COM). Windows DNA provides a common set of services that are exposed in a unified way at all tiers of a distributed application.

By taking advantage of the capabilities in Windows DNA, insurance developers can build entirely new categories of applications, including electronic commerce and other interpersonal and inter-corporate communication applications. Because they are taking advantage of standard implementations of networked services and modern, component-based development methods, developers can deliver these innovative applications much faster and more cost effectively than previously.

Traditionally, insurers and other financial services institutions have built separate IT systems and infrastructures to service the different business opportunities and requirements as and when demand arose. In this environment, an insurer must maintain and administer a number of different client platforms – ranging from simple 3270 based terminals through to an integrated PC environment. Typically these platforms are so different there is little opportunity to share user, administration or development skills across them. If business process analysis shows that certain applications should be deployed at a particular point of contact, it is not possible to do so because each of these platforms is targeted to one particular task. These issues lead to increased operations, development and training costs and an inability to adapt quickly to changing business requirements.

Microsoft Windows operating system family

The Microsoft Windows operating system family allows financial institutions to choose the most appropriate hardware platform for the task to be performed.

The Microsoft Windows operating system family – Microsoft Windows CE, Windows-based Terminals, Microsoft Windows 95/Windows 98 and Windows NT/Windows 2000 – allows financial institutions to choose the most appropriate hardware platform for the task to be performed. Handheld PCs and portables can be used to support mobile users. Windows-based Terminals, where applications and data reside completely on the server, can be used in task-oriented environments, where manageability and cost of ownership are paramount. NetPCs offer reduced cost and complexity while maintaining the choice and flexibility associated with PCs. High-end workstations offer advanced levels of functionality and flexibility. This highly scaleable and manageable family of solutions, with a common Windows architecture, allows financial institutions to maximise the investment they have made in applications, development skills, help desk systems, technical expertise, and end user knowledge of the Windows operating system.

Windows CE has proven itself capable of handling the most demanding 32-bit embedded applications and brings the full power of the Microsoft 32-bit Windows-based development tools to the embedded systems designer.

Microsoft Windows CE is a compact, highly efficient and scaleable operating system that is being used in a wide variety of embedded products, from hand-held PCs to specialised industrial controllers and consumer electronic devices. Windows CE has proven itself capable of handling the most demanding 32-bit embedded applications. Equally important, Windows CE brings the full power of the Microsoft 32-bit Windows-based development tools to the embedded systems designer.

One of the primary reasons to choose Windows CE for embedded applications is the widely used Microsoft Win32 Application Programming Interface (API). The Win32 API is at the core of nearly every 32-bit application being written for Windows today, from high-end server products running on the Microsoft Windows NT operating system to the smallest desktop and embedded applications. Using this technology, developers can now create applications which will support mobile users with the same level of application richness found on other hardware platforms.

Within the Windows DNA architecture, all financial services clients are connected to the Windows NT Server via standard IP based protocols. This lowers infrastructure costs, decreases systems administration costs and increases reuse of administration skills, thus lowering training costs.

By rationalising the core messaging protocols used across financial services clients, financial institutions can benefit from the economies of scale by deploying one set of application components to support these core messaging protocols. These components can be reused across the financial services clients. Because of its seamless support for many network protocols, Windows NT Server acts as a gateway to existing systems and the corporate network. This allows financial institutions to preserve existing network investments and migrate to the new standard networking protocols in an evolutionary manner.

Microsoft and its partners provide many strategies for preserving existing investments in transaction processing systems.

Microsoft and its partners provide many strategies for preserving existing investments in transaction processing systems – MVS, AS/400, Unix – by integrating them into Windows NT Server-based applications. These include CICS and XA support in Microsoft Transaction Server, Microsoft Message Queue Server, OLE DB, Data Transformation Services (DTS), simplifying the process of importing and transforming data from multiple, heterogeneous sources into Microsoft SQL Server, and DCOM support on non-Microsoft platforms.

The ability to integrate with existing systems together with its support for new technologies such as the internet and intranet and a wide range of high productivity development tools, makes Windows NT a powerful application development platform. Developers can produce new applications which tie together existing systems and extend the reach of those systems more quickly and easily than ever before.

Component based architecture

Within the Windows DNA architecture, applications are built as a series of components. Microsoft’s Component Object Model (COM) is the backbone used to knit these components together.

Within the Windows DNA architecture, applications are built as a series of components. Microsoft’s Component Object Model (COM) is the backbone used to knit these components together. Microsoft COM is an accepted standard, and the multitude of programming languages which support this model allow developers to create applications in the environment with which they are most familiar.

Building applications based on COM components has many advantages for insurance institutions. They can build flexible applications that can be quickly extended and altered to meet new business requirements. They can reuse business components they built themselves across applications. They can take advantage of the many pre-built components available from third party suppliers. They can tailor one of the many ‘off the shelf’ applications that support COM interfaces to rapidly build new solutions that meet their particular business requirements. They can integrate existing systems through COM: Host or UNIX-based applications are exposed to the developer in a consistent way through the COM interfaces.

Component services

To complement and extend COM, the Microsoft Transaction Server (MTS) provides a distributed transaction co-ordinator and an object request broker.

To complement and extend COM, the Microsoft Transaction Server (MTS) provides a distributed transaction co-ordinator and an object request broker. It is designed to make the development of high performance scalable and reliable distributed applications easier and faster with none of the pain traditionally associated with this type of development.

MTS applications are composed of collections of COM components that are written to provide business level functionality. As COM is language agnostic, these components can be written using any development language that supports the generation of COM objects. This includes Visual Basic, Visual J++ and Visual C++. By providing this choice, Microsoft are giving insurance corporate development groups the ability to reuse many of their existing skills, lowering development costs and increasing their speed to market.

MTS itself provides a server framework in which COM components can run. It handles server registration, process and thread management, context and lock management, management and synchronisation of shared resources and component based security.

MTS has the ability to manage transactions with disparate databases on various platforms but due to its close integration with SQL Server 7.0, COM objects running under MTS provide an ideal platform for developing insurance solutions. By developing COM components that act as business wrappers to legacy data, insurance companies can develop new solutions to new channels without the need to re-implement existing legacy systems.

All this can be achieved by the use of component services running under MTS, without the need to change any of the existing legacy systems. By providing this and more, MTS allows an insurance developer to concentrate on the business logic and not the distributed infrastructure.

Legacy integration

Microsoft’s SNA Server 4.0 is a comprehensive gateway and application integration platform that provides the best way to embrace internet, intranet, and client/server technologies while preserving investments in existing AS/400 and mainframe based systems.

One of the key systems within an insurance company is core processing. As mentioned previously, integration with this legacy or heritage data is key to providing new products and services to the insurance industry. Microsoft’s SNA Server 4.0 is a comprehensive gateway and application integration platform that provides the best way to embrace internet, intranet, and client/server technologies while preserving investments in existing AS/400 and mainframe based systems.

SNA Server 4.0 includes:

· COM Transaction Integrator for CICS and IMS: COMTI makes it easy to integrate Cobol applications running under CICS or IMS, with COM components running under MTS. In addition, it allows transactions running in CICS and IMS applications to participate in an MTS transaction, taking advantage of the services within the MTS environment;

· An OLE DB provider for AS/400 and VSAM: This technology allows financial institutions to integrate their mainframe data sources with Microsoft’s Universal Data Access (UDA) strategy. This allows the development of new COM based applications that have access to legacy data stores.

For more information on UDA visit http://www.microsoft.com/uda

Presentation of data

It is important that the look and feel of any new system is very familiar to the existing user community. If this is done then an insurance company can make significant savings in user training and maintain a consistent image to the customer irrespective of delivery channel.

It is important that the look and feel of any new system is very familiar to the existing user community. If this is done then an insurance company can make significant savings in user training and maintain a consistent image to the customer irrespective of delivery channel. To facilitate this, Microsoft have several environments that enable developers to produce clients that talk to the middle tier business components whilst presenting user interfaces and functionality that can easily be tailored to suit the different users and distribution channel requirements.

Windows DNA offers a broad range of presentation options giving the application developer choice. Windows DNA permits the developer to choose the appropriate Windows components and internet technologies to support the richest possible interface and range of client environments, from handheld wireless devices to high-end workstations. These include:

· HTML for the widest reach of client, supported on any client browser including Internet Explorer and Netscape;

· Browser Enhanced applications written to take advantage of the technologies inherent in the browser to gain maximum functionality and richness; Within Internet Explorer 5.0 these technologies include

· Bespoke Executable applications are written using the Win32 API. These applications offer the most functionality with reach limited to the application platforms that support the Win32 API.

By selecting the appropriate presentation choice, insurance companies can develop systems which offer new and innovative solutions that do not impact existing enterprise legacy systems. For instance, during the duality phase of the Euro, COM components accessing the legacy data can be embedded in Active Server Page (ASP) scripts that include Euro conversion rules. These ASP pages running under Microsoft’s Internet Information Server (IIS) generate HTML that can be designed to display insurance premiums, transactions and account information in both the national currency as well as the Euro denomination.

For more information on IIS and ASP visit http://www.microsoft.com/iis

COM+: Enabling the future of Windows DNA

One of the keys to Windows DNA is a rich set of integrated services that make it relatively easy for developers to create and use software components and applications. Today, those system services are provided through COM. In the future, a richer set of services in COM+ will make it even easier for developers to create more innovative applications.

COM+ preserves the investments of code and skills that developers have made in COM. Applications that exploit today’s COM services will work in the COM+ environment, and COM+ will make it even easier to build and reuse components. COM+ puts more of the infrastructure needed to write applications in the system, so that developers do not have to write the infrastructure themselves. They will be able to concentrate on writing the logic to solve their problems, rather than writing code to leverage object technology.

Today, a developer writing code in any distributed environment spends some time writing code that has little to do with the actual value-added functionality of the component under construction. Ideally, developers should spend less effort building the foundation of the component and more on the higher-level purpose. Fortunately, much of the code for implementing these fundamental capabilities is nearly identical for all components.

COM+ makes development much easier, by providing a default implementation of these capabilities for the most common scenarios. If the run-time implementation doesn’t suit developers’ needs, they can customise the foundation by using their own implementations. Although tools such as Microsoft Visual Basic currently handle these issues automatically for developers, the system-supplied COM+ extensions will provide a standard implementation regardless of the language chosen for development.

COM+ also defines a simpler, more robust model for registering, installing and versioning components. This makes it is easier to use and administer COM technology.

COM+ services

The basic idea behind the new COM+ services is an auto everything environment based on declarative services. Developers should be able to declare what they want their components to do and what services they need. For example, if they need components to be transactional, they simply declare them as transactional.

Contracts in COM+ are COM interfaces and are no different to the existing COM model, but the attributes of the COM class defined by metadata describes the services that a component needs to have in place, in order to run effectively. The COM+ runtime implements these services, so developers will no longer have to define a standard set of interfaces that must be implemented. Developers will be able to concentrate their efforts more on the business logic and less on the infrastructure.

The services within COM+ can be split into two areas, the first is the adoption of existing services into the COM environment, the second is a new set of services that will provide the developer with an easier programming model.

Existing services – unification of COM and MTS

The Component Services in COM+ will also continue the trend set by the MTS programming model, enabling developer code to focus almost entirely on business logic. Even though developers will be using complicated system services, they won't need to write code to access those services. Instead, the COM+ component will have services provided by the system based on attributes set on the component.

Developers can now create objects that require transactions and the COM+ runtime will invoke these services automatically. In addition, COM+ has removed the responsibility of managing the services from the developer. For example, unlike in the MTS model, if the COM+ component is marked as requiring a transaction then any error condition will cause an abort. If no errors occur, an auto commit will be generated.

In addition to the transactional support, in COM+ full integration of MTS into COM will include broader support for the attribute-based programming model, including improvements in existing services such as Security and Administration, as well as improved interoperability with other transaction environments through support for the Transaction Internet Protocol (TIP).

New COM+ services

In addition to the existing services, COM+ has introduced four new key services that can be invoked in the same declarative way. By enhancing and extending existing services, COM+ further increases the value these services provide. COM+ includes:

· A publish and subscribe service provides a general event mechanism that allows multiple clients to ‘subscribe’ to various ‘published’ events. When the publisher fires an event, the COM+ events system iterates through the subscription database and notifies all subscribers;

· An in-memory database, with support for transactions provides an application with fast access to data, without incurring the overhead associated with storing and accessing durable state to and from physical disk;

· Queued components allows clients to invoke methods on COM components using an asynchronous model. Such a model is particularly useful in unreliable networks and in disconnected usage scenarios;

· Dynamic Load balancing automatically spreads client requests across multiple equivalent COM components.

Turning data into information - datawarehousing support

An insurance firm is required to balance product support issues with the analysis of customer profitability. If insurers are to stay profitable and competitive while making better business decisions quickly, then the ability to respond to change is the key to success. Understandably, insurers seeking to improve their decision-making can be overwhelmed by the sheer volume and complexity of data available from their varied core processing, product and customer information systems. Making this data available to a wide audience of business users and systems is one of the most significant challenges for today’s information technology professionals.

In response, many insurance companies are looking to build a data warehouse to unlock the information in their operational systems and understand real-world business problems.

The data warehouse is an integrated store of information collected from other systems, and becomes the foundation for decision support and data analysis.

The data warehouse is an integrated store of information collected from other systems, and becomes the foundation for decision support and data analysis.

The data warehousing process is inherently complex, and as a result has been historically costly and time-consuming. Microsoft has worked with the industry to create a platform for data warehousing, consisting of both component technology and leading products, which can be used to lower the costs and improve the effectiveness of data warehouse creation, administration and usage.

Microsoft has also been developing a number of products and facilities, such as Microsoft SQL Server version 7.0, that are well suited to the data warehousing process. Coupled with third party products that can be integrated using the Microsoft Data Warehousing Framework, customers have a large selection of interoperable, best-of-breed products from which to choose for their data warehousing needs. Microsoft SQL Server 7.0 offers a great breadth of functionality to support the data warehousing process.

In conjunction with the Data Warehousing Framework, Microsoft is delivering a platform for data warehousing which reduces the costs, simplifies the complexity, and improves the effectiveness of data warehousing efforts.

Through the technologies underlying the Microsoft Data Warehousing Framework and the features in Microsoft SQL Server 7.0, Microsoft is working to reduce the complexity, improve the integration, and lower the costs associated with data warehousing. Customers investing in data warehouse technology based on the Microsoft platform can be assured that they are creating applications with the best possible economic considerations, while maintaining full scalability and reliability of their systems.

The use of data warehousing technologies brings benefits to applications harnessing this technology. For example, an increase in the return on investment in marketing and advertising can be achieved through one-to-one targeting of services and product groups at particular customer segments. Powerful data interrogation tools allow business opportunities to be found in unexpected areas and the development of previously unconsidered product groups.

Security

Windows NT Server offers a secure, robust and scalable platform for demanding, commercial use.

Windows NT Server offers a secure, robust and scalable platform for demanding, commercial use. Comprehensive and usable security was a major design goal of Windows NT Server - ensuring that security is integrated and comprehensive. It is the only server operating system that provides U.S. Government C2-level security at the desktop and server. The UK Information Technology Security Evaluation and Certification (ITSEC) have given it an FC2/E3 rating.

Above and beyond this, Windows NT Server is highly scalable so that even a multi-national insurer can have a manageable total number of servers, reducing security management costs and facilitating security auditing. It is supplied with a wide variety of standard features for security, which are well documented. It provides comprehensive tools to make it easy for insurance companies to manage and maintain their security. Insurers can manage user policy account and access rights from a central location. They can select settings from a wide range of user and system parameters, and graphical tools make managing security easier. For example, a straightforward system can be established that forces users to employ strong passwords that must be changed over a defined frequency.

The Microsoft BackOffice family of products can help insurance companies save money by providing a single source of comprehensive system services for integrating distributed systems.

Today's mission critical applications in insurance integrate relational databases, messaging, and access to legacy systems. The integrated Microsoft approach provides a reliable and cost-effective platform for these applications, along with the benefits of a single network login, unified account management, and common event and service management. The Microsoft BackOffice family of products can help insurance companies save money by providing a single source of comprehensive system services for integrating distributed systems.

High volume, reliable processing power

Within the insurance industry and in the financial services arena in general, it is not only necessary to provide systems that can process high volumes of transactions, but also to provide systems which will ensure uninterrupted processing, because the opportunity cost of system downtime is unlimited. Microsoft has invested considerable research and development in Symmetric multiprocessing (SMP) technology for Windows NT Server, allowing it to run on machines with up to 32 processors, meeting the transactional demands of the industry. The technology necessary to achieve genuine, load balancing, symmetric multiprocessing is intrinsic to all components of Windows NT Server.

Insurance firms will spend millions of dollars designing disaster recovery plans every year. Clustering technology provides maximum uptime in a financial environment, which is essential to financial operations, enabling them to be expanded, using industry standard hardware, to add processing power as needed. With Windows NT Server clustering, database servers, transaction processing monitors and applications will all be able to use the cluster API to fully utilise the capabilities of the Windows NT Server cluster.

In order to meet the strict security requirements placed on insurance institutions, security considerations were integral to the design of Windows NT from the kernel level up, thus providing an integrated system not only for the Windows NT operating system itself, but also for add-on products such as BackOffice. The integrated security approach makes systems more secure because there are fewer points at which security access is defined, hence reducing the number of potential attack points. For explicit security requirements within the banking marketplace, Microsoft offers products that address needs such as message encryption, digital certificates, or the requirements of firewall systems. Application and utility products for data centre operations, as well as security-related supplementary products, such as firewalls, encryption, and auditing tools, are available from several vendors.

Looking towards the future, it is important to understand the evolution of the Windows family of operating systems.

Microsoft Windows 2000 Server

Microsoft Windows 2000 Server provides the foundations for Information Technology managers who want to develop architectures for the future, while addressing today’s computing challenges.

Microsoft Windows 2000 Server provides the foundations for Information Technology managers who want to develop architectures for the future, while addressing today’s computing challenges. Windows 2000 operating system will bring advantages in the areas of management, application infrastructure, networking and communications, and information sharing and publishing.

The Windows 2000 platform is comprised of Windows 2000 Server, Windows 2000 Advanced Server, Windows 2000 Datacenter Server and Windows 2000 Professional. Using both the server and the client versions of the next generation Windows operating systems will allow the building of a computing infrastructure on a lower cost, flexible platform that can readily adapt to changing needs.

Windows 2000 Server is a multi-purpose operating system that allows a single, familiar environment to address a full range of business requirements. From connecting thousands of employees to company email and accounting systems, to providing simple access to the internet or intranet, or enabling a secure business environment for partners through extranets - this one operating system allows an organization to run more efficiently.

Beyond the work Microsoft has done to develop Windows 2000, this operating system builds on the momentum of a large community already supporting Windows NT 4.0. The improvements included in Windows 2000 Server address four areas of particular concern to organizations seeking a cost-effective networked computing environment:

· Management - Managing servers, desktops, and network resources;

· Applications Platform - Running server-based line of business software;

· Networking and Communications - Supporting network infrastructure for voice and data;

· Information Sharing and Publishing - Providing access to file, print, web, and streaming media.

Management

Rationalisation within the industry means that insurers are increasingly dependent on a networked environment that is reliable and predictable, yet flexible. The addition of new users or entire branch offices to a system must not cause service interruption or demand full staff attention. Nor must environment changes, such as adopting a new business process or installing a new piece of software, require a halt to day-to-day operations for network reconfiguration or software deployment.

As networks serve an ever-widening range of complex tasks, they require an equally widening array of management capabilities.

In short, as networks serve an ever-widening range of complex tasks, they require an equally widening array of management capabilities. Windows 2000 Server satisfies these requirements with an integrated collection of management tools. The Active Directory sits at the centre of these services.

The Active Directory is a flexible, extensible central repository that stores the information that administrators need to keep their network running efficiently. Fully integrated with the operating system, it tracks information about the hundreds or thousands of resources on a Windows 2000 Server-based network, from printers to people, storage devices to software applications. It allows people to easily find and use what they need on the network. Among its many uses, the Active Directory acts as the foundation for the rest of the Windows 2000 management services. These include:

· a central console for an array of snap-in management tools;

· a set of data gathering resources for monitoring network operations;

· a scripting host that lets the use of the selected scripting language to automate system processes;

· a policy editor to give the facility to assign specific configurations to particular groups of users.

These services will make it much simpler to manage complex networks.

Applications platform

Windows 2000 Server is a multi-purpose operating system that enables the use of familiar tools and processes to build and manage the software applications needed to make organisations operate more effectively.

For example, the employee data in the Active Directory can also be used to support business process logic used in accounting or ERP applications. Applications built for Windows 2000 Server use the well-established Component Object Model, that lets companies split processes across client and server systems for the most efficient operation. In addition, applications for Windows 2000 Server can take advantage of a number of services included with the operating system, such as internet, streaming media, and transaction processing. All these pieces, from directory services to website creation, are supported by a single set of operating system services that are designed to work together. Windows 2000 Server provides developers with a comprehensive set of services needed to build scalable business solutions for the modern day insurer.

Because it builds on the momentum behind Windows NT Server 4.0, the next generation server operating system will create an extensive market for third-party software and hardware solutions. These products will address the demands of today's enterprise business applications, as well as anticipating the needs of the most demanding information systems of tomorrow.

Networking and communications

The server operating system has to connect computers together within a building, across a country or the world and, almost certainly, across the internet. Windows 2000 Server contains services to connect individuals and branch offices to a central network. It also enables customers and partners to have direct connections to the organisation over the internet. Above and beyond this, the ability to weave in the capabilities of voice and data networks to create intelligent call handling and voice collaboration systems can be exploited. In turn, these systems can feed into internal software applications. For example, policy sales order processing and management systems can be supplemented with customer service applications that use voice and intranet features.

As these communication capabilities work directly with the core server operating system, this allows creative, flexible systems without requiring a lot of specialised products to be built. The integrated services of Windows 2000 Server, including the directory services of the Active Directory and integrated internet communication protocols, make it easier to configure advanced communication systems using inexpensive and widely available hardware and software.

Information sharing and publishing

The real payoff of a strong server operating system is its ability to deliver the information needed to the location it is needed, when it is needed.

The real payoff of a strong server operating system is its ability to deliver the information needed to the location it is needed, when it is needed. Information used to mean a realm of file and print services and paper documents. Today, the information that companies need to run their businesses also includes Web documents and services and assorted multimedia content.

Windows 2000 Server also addresses this area of information sharing and publishing. This is a natural extension of the application and communication capabilities mentioned above. Once information is created, the same familiar tools can be used to manage and share all types of material using a host of standard protocols.

In addition to the operating system's file and print services, Windows 2000 Server's web services can be used to create intranets or internet sites and other web-related applications. Media Services include server and tool components for creating and delivering streaming audio, streaming video, illustrated audio and other multimedia types over intranets and the internet.

With the Index Services included in Windows 2000, every document on a network, including web-based information, can be indexed for full text search and retrieval. The same search process will let users find all kinds of information, including web content and other file formats, anywhere on a corporate network.

Windows 2000 Server offers a complete set of integrated and easy-to-use tools and services that will reduce the cost of owning and managing IT systems.

Windows 2000 Server offers a complete set of integrated and easy-to-use tools and services that will reduce the cost of owning and managing IT systems. It will also deliver a flexible, extensible platform for optimising an existing computing infrastructure. Windows 2000 Server lets companies build network infrastructures that can readily and inexpensively grow to meet new demands and opportunities, without either bypassing or rebuilding existing computing systems.

Technology summary

Insurance companies are going through changing times. They must adapt very quickly to changing customer needs and the changing landscape of the insurance industry and the financial services sector as a whole, much of which is as a result of global consolidation.

To support these requirements, the insurer needs to take advantage of the power of new technologies to build new systems, but technologies which do not require them to throw away their existing transaction processing systems. In addition, the construction of these applications must consume less time and effort than they have in the past.

Windows Distributed interNet Applications Architecture (DNA) delivers a comprehensive set of services that provide a consistent programming model, a consistent development environment, consistent distributed services and a consistent application model to the desktop and the server. These services are powered by the proven technology in the Windows family of operating systems and the Microsoft BackOffice family of applications.

By building to this architecture, insurance application vendors can develop products that provide higher integration and more flexibility than before. By building to this architecture, insurance companies can more quickly and easily build delivery channel applications that integrate the new technology with their existing systems, to provide more customer service at lower cost than ever before.

The next step

Microsoft is removing the complexity that has traditionally been associated with designing and building distributed large-scale systems that both integrate with existing legacy but also allow for the development and delivery of new solutions.

Microsoft has a strategy that is designed to meet the demands of the changing insurance landscape. Microsoft is removing the complexity that has traditionally been associated with designing and building distributed large-scale systems that both integrate with existing legacy but also allow for the development and delivery of new solutions. These new solutions can be implemented in both a time and cost effective way. Microsoft is achieving this by removing the difficulties and obstacles that typically impair the development of cost-effective client/server solutions.

The principal hardware vendors have their Windows NT strategy in place. The number of applications vendors with products running on Windows NT, Microsoft Back Office and SQL Server grows almost daily. Finally, the technical and consultancy services available through Microsoft and its business partners are now firmly in place.

For further information, contact:

Nicholas Illidge, European Financial Services Manager, Microsoft

email: nickil@microsoft.com

Richard Pepperman, Business Manager, Tudor Rose

email: richard@ndm.co.uk