By Katherine Burger
November 05, 2007 It often seems as if the theme at insurance industry conferences is nagging and haranguing -- pointing out all the things insurance companies do wrong when it comes to technology. But so far at this year's Insurance & Technology Executive Summit, the messaging has more to do with pointing out opportunities -- areas of potential growth and profit for carriers, if only they can gather the technology, financial and personnel resources to capitalize them. Nowhere is this more striking than on the topic of globalization, and two leading industry figures challenged the Executive Summit audience on Monday to change their perspectives on globalization and what it means for insurance.Identifying the "three Rs of insurance that drive everything -- risk, revenue and regulation," David West, research area director, insurance, TowerGroup, pointed out that "globalization gives us the opportunity to transfer risk," but added that those risks are extremely diverse and complex in the global arena. They include currency risk (especially in light of the ongoing decline of the U.S. dollar) and operational risk (especially related to outsourcing). An enterprise risk management approach becomes essential when a carrier is operating globally, West said. "You have to create platforms to measure and monitor risks around the globe, or you will be overexposed," he stressed. From a revenue perspective, the obvious opportunity is the one to sell new products, West noted. But this requires agility -- "You have to have an agile platform so it doesn't take a year to develop new products," he said. Scott McKay, CIO and SVP, operations and technology, Genworth Financial, agreed that this is the form of globalization most U.S.-based insurance companies understand, but also pointed to operational globalization (through outsourcing partners, for example), and financial globalization -- "actually the first kind of globalization that impacted insurance companies" through their investment operations, he added. Also on the financial side, TowerGroup's West argued that globalization can help insurers "reduce costs through rightsourcing -- placing [different] aspects of your business in the right place" and taking advantage of "opportunities to send business or portions of your processes to where it makes the most sense." There is a regulatory aspect to globalization, too, and West contended that U.S. companies are "not on a level playing field" in this regard. The Solvency II initiative underway in the EU is an effort to equalize things, he added. According to Genworth's McKay, there is actually "regulatory arbitrage going on" around the globe, point to Bermuda as a base for reinsurance as an example. McKay agreed that a global approach to regulation can be a kind of double-edge sword. While there is a focus on creating a more level playing field, he said, some markets also want to use regulation as a way to gain an advantage -- for example, in the form of lower tax rates. McKay emphasized that globalization is "going to keep happening faster and faster," and stressed that companies that reject globalization are going to lose out competitively. But that doesn't mean it will be easy for companies that do recognize the opportunities. "Competing in the world today means having the right capabilities," he said. "You've got to serve markets, consumers, and producers. You need strong, highly analytical people, [and an ability to do] modeling on a real-time basis." Success in the global marketplace also means a company (including its management and workforce) has to "embrace paradox," according to McKay -- understanding that there are a number of tradeoffs between growth and balancing risk. That means addressing questions such as: - How do I localize for growth but centralize for efficiency? - How do I work with both entrepreneurial and mature opportunities in business? - How do you move fast & respond but maintain control?