Best practices : from e-insurance to e-takaful

Best practices : from e-insurance to e-takaful 1st e-takaful seminar Dubaï 06-04-2005

Overview • E-business definition • E-business strategy road map • E-insurance overview • E-takaful

E-business E-Business Electronic commerce m-commerce

E-business • Use of of electronic means to conduct an organization’s business internally and/or externally • Internal e-business • Better info sharing, knowledge dissemination • management reporting • External e-business • Formulation of a sales promotion, • Collaboration with partners

E-commerce • Focus on facilitating transactions and selling of products and services online, • By internet or any other telecom network, • Encompasses all trading steps : • Online (marketing, ordering, distribution), e-payment • Buy-side activities (suppliers) • Selle-side activities (customers)

m-commerce • Subset of e-commerce • Similar online activities • Underlying technology is more specific • Limited to mobile telecom networks • Accessed through wireless hand-held devices (mobile phones, hand-held computers, personal digital assistants)

E-business strategy roadmap • Vision formulation • Business objectives definition • Customer value creation • Market segmentation and targeting • Organizational set up • E-business model formulation

Pre-requisites • Managers need to be «catalysts of change » • Combine positive traits of both the « visionary » and the « efficient performer » • High levels of both creativity and analytical ability • Know that ideas by themselves are not enough to build a profitable business • Able to find new ideas by analysing state-of-the art cies within their industry and across other industries

Vision formulation • Twofold goals : • Focus attention and effort of top management and employees around a common task • Encourage creativity and innovation by expanding your thinking beyond the existing boundaries of the cy and its environment

Business objectives definition • Objectives have to be measurable • Allow progress tracking • Ex : % of savings amount due e-business strategy implementation

Customer value creation • Low price • Become cost leader within the industry • Differentiation advantage : • Superior brand name, high service quality, broad product selection, • Leverage information available to create benefits for your customers (by data mining techniques for instance)

Market segmentation • Closely linked to value creation • Two steps : • Select criteria for dividing you market into segments • age, income for instance • Consumer (personal lines), corporate (commercial lines) • Decide which segment to target • Segment’s needs driven products and services

Organizational set up • What scale? • Analysis of expected cost structure of e-business activities • Analysis of each activity of the value chain • Analysis of its underlying cost drivers • What scope? • Products scope • Leverage the internet to establish partnerships with complementors • How integrated? • Which e-business activities to perform in-house and which ones to outsource?

Organizational set up • How to align physical-world strategy with e-strategy? • Stragtegic decisions • Branding, pricing, IT and channel conflict • What structure? • Integrated into the existing organization • Leverage brand to attract customers to online channel • Multi-channel offering becomes possible, cross promotions, shared IT • Set up inside a separate entity

Business model • Cost structure? • Consider individual parts of te value chain • Production, IT, marketing, sales an after sales service • How can we use internet to lower costs across the value chain? • Revenue structure? • Transaction fees, advertising revenues, subscription fees (in B2C e-commerce) • Assess sustainability of business model • Intensity of competition, substitutes, etc. • Leveraging data mining techniques to analyse customer information

Business models for e-insurance • Insurance cy’s websites • homepages of individual insurers • Products portals • Comprehensive standard websites for insurance • Aggregators • Internet insurance brokers • Online risk markets • Large risks placed with trading partners • Point of sale portals • product marketing through various theme-based pages

E-insurance difficulties • Complexity of some products • Claims settlement difficult to standardise • Internet suited for products where the contact with the cy is more frequent • Internet viewed as insecure medium for high amounts • Regulation (licences)

Internet-product suitability High * Large commercial risks * Health insurance * Commercial motor Transaction volume * Annuity products More advice/ Less suitable * Motor * Index linked life products * Household * Term life Low Low Product complexity High

E-insurance advantages • Important market share gain potential • Standardised personal lines insurance • Limited suitability for sale via internet • Most life and pension products, health insurance, commercial insurance • Enormous potential for improvements in quality and service levels • Better tailored products • Shorter reponse times • Greater flexibility in cover structure • Better risk management support

E-business increases efficiency • Sales, administration, claims settlement, claims payment expenses • decrease for both personal and commercial lines • Personal lines cost cut potential > Commercial lines cost cut potential • High level of advisory services and tailor made products

Market entry barriers lowered • New entrants can avoid long and expensive setting up of traditional sales network • “Lateral” from other sectors benefit from easier access • Financial services, internet cies, banks, online brokers, internet service providers • Internet presence and brand name to add insurance to their product range • More efficiency • Established insurers face growing competitive pressure

Towards more integrated e-business models • E-business makes it possible to disseminate information quickly and in large volumes • Traditional value chain is deconstructed and certain links are outsourced to specialist providers

Internet impact on value chain • Product development & rating • Standardisation, data availability and analysis, new risks • Marketing • New marketing opportunities, deintermediation, reintermediation • Administration • Standardisation, automation • Asset management • Better information • Claims management • Automation, proximity to the customer, additional services

Potential providers • Product development & rating • Actuarial firms • Marketing • Trading cies, financial services providers, virtual brokers and markets • Administration • Policy administrators, IT companies • Asset management • Asset managers, funds, banks • Claims management • Professional claims managers, call centres, Repair companies

Role of traditional brokers is shifting • Standard products • Considerable competition • Products that need more advice and for which prices and benefits are not easy to compare • Using e-business, more finance management and risk consulting services • Ex : complex pension products, commercial lines

Customers benefits • Greater transparency, lower prices and improved services • E-business opens up new ways of reducing costs • Hardening competition ensures that these benefits are passed on to the customer • Internet offers a number of possibilities of increasing the value creation for customers by means of increased transparency and improved services

E-insurance conclusion • From purely info and communication medium to important distribution channel • Focus from selling products to consumers (B2C) to selling to commercial clients (B2B). • Internet does not only impact the distribution but the entire business process • Challenge of continuously optimizing the business processes

Insurance not permissible • Uncertainty (Gharar) • Gambling (Maisir) • Interest (Riba)

E-takaful • Prevent al-gharar, uncertainty and ambiguity in the transaction • Provide to the consumers with comparative informations between products available • Lead to more informed decision by consumers • Scope of the cover, benefits and exclusions • Rate of tabarru’ for takaful vs saving

E-takaful • Young industry • Can leverage on the conventional insurance e-experience • Comprehensive e-business strategies should be built (eventhough takaful is a high level brand) • Takafulconcept & internet suitability • E-business enhances the transparency (involved by the takaful concept) • E-business favor the participant’s empowerment (involved in the takaful concept)

Thank you Sources Swiss Re, Sigma n° 5/2000 Strategies for e-business, Prentice Hall, Financial Times Dubaï 06-04-2005

Best practices : from e-insurance to e-takaful