Insurers benefit from adopting global standards

China's insurance industry is going through rapid changes with demand for larger capacity and stronger techniques to ensure security. Shanghai Daily talked with Peter Haslebacher, chief operating officer for insurance solutions at SunGard Financial System Asia Pacific, on how to deal with such a paradox.

SunGard is a global software and technology services company with annual revenue of US$2.8 billion. It provides software and processing solutions for financial services, education and the public sector, serving about 16,000 clients in more than 100 countries with a staff of 13,000.

Q: China's insurance sector is poised to open wider to the outside world. Do you detect anything new taking place here?

A: Chinese insurance companies used to have their own in-house systems. Since the business is growing so rapidly here, problems arise because competition hinges on how much volume of business a company can handle in a short period of time. Chinese insurance companies are looking for better solutions. What we are seeing in China is a clear trend toward industry standard solutions, compared with home-grown solutions. It shows a certain level of maturity when you reach the point where you can't build any more in your own house. More Chinese companies are opening up to foreign expertise.

Q: Why can't home-grown systems work any longer?

A: One of the big risks for the in-house solution is that you are depending on the individuals that know your application very well. You also need to make sure that nobody else knows your application because of security. If you come up to industry standards and if one person leaves, we have backup. Knowledge is spreading along many individuals, and many insurance companies are using this in the same way.

Q: What exactly is the "industry standard solution?" Who designs it? How about its security and costs?

A: Industry standard solutions are recognized in the market as robust, scalable and widely used with a large user community. Because of the large user community, the functionality built into the solution will cover a large area of IT processes with standard applications and functionality. The scope of an industry standard solution is based on requirement input from the user community and market. The level of customization is minimized, and this will make the implementation and operation more predictable and often less costly. A large user community is a guarantee for the user community that security and safety standards are followed and the vendor understands very well how mission critical the software is for the market.

Q: Is it safe to use the industry standard solution? Will it reduce competitiveness?

A: The competition is not on the system. Like manufacturing, very often, the base of the core is the same with brands being different. They all run on the same reels. What matters is the speed to the market, operational efficiency, how well you handle regulations, the total cost of ownership and the way you integrate the organization and process together. Companies start to realize that they don't necessarily have to own the management or application. Ten years ago, no one talked about cloud computing. Today, everybody talks about it and uses it even if they don't necessarily understand it.

Q: Are insurance regulations in China catching up with these new trends?

A: China's regulations are fairly effective. Many places in this country are constantly changing, and the industry is evolving fast. Regulators need to adjust some regulations. It is a bit painful for the industry that the regulations are changing so often. But what we see is regulators using industry standard software to simulate some of the regulations to decide whether they are practical or not.

Q: How do you measure Chinese insurers' appetite for risk?

A: In the past five to six years, we have seen an increased demand from China's insurance companies to use industry standard risk software to replace home-grown or spreadsheet solutions. Risk appetite is ultimately the result of business strategy in an insurance company. Decisions on risk strategies have to be based on solid information. Insurance companies have access to large volumes of data. IT can help to extract the right information from the data and provide a basis for better business decisions.

Q: How do you see the future of the insurance industry in China?

A: The insurance market in China still has huge untapped potential. Market liberalization and increased financial market awareness will help potential customers become more familiar with a wider range of insurance products. Consumers understanding that the individual has to contribute in various forms to maintain a lifestyle will further increase the demand for insurance products. The increase demand will attract more industry participants, and, in turn, the increased competition will provide a wider range of products for the customer. This business development process needs to be governed by transparent rules and regulations that will increase the confidence of the consumer.

Q: Any other trends in the Chinese insurance industry?

A: Consumer education is a very important in the development of the insurance industry in China. This will be the responsibility of the insurance industry, but the regulator also has to play an important role in this effort.

Q: Will using the industry standard solution benefit Chinese insurers if they want to expand offshore?

A: It is fair to say Chinese insurers are still focusing on the market in China. The market is huge and there is still a lot of potential. You also see an increasing number of foreign insurance companies coming to China, but you may see new business models of cooperation between Chinese insurance companies and their foreign counterparts.

Q: What's your opinion about the ambition of some Chinese insurance companies to expand abroad?

A: We know it will start, but we are not sure how far away it is. When companies reach a certain level of saturation within the country, they may consider going outside. It is not yet at that stage. There is a relatively big penetration in big Chinese cities, but not so much in small and rural areas. The question for Chinese insurance companies is whether they should go to these places or go to markets outside. Chinese insurers, we believe, should still concentrate on China.

Q: What's the impact of the global financial crisis on the insurance sector?

A: Much more focus on risk solutions than ever before. The reason why insurance companies invest in risk solutions is basically they want to know more about various risk scenarios in a shorter period of time. So you need more powerful machines that can help you handle an increasing volume of data in a short time.