Title The strategic importance of information technology in Hong by lanyuehua


									             The strategic importance of information technology in
   Title     Hong Kong insurance industry

Author(s)    Chan, Pui-leung; –sl›‚o


Issue Date   1998

  URL        http://hdl.handle.net/10722/38080

  Rights     Creative Commons: Attribution 3.0 Hong Kong License
diploma or other qualification.

             CHAN PUI LEUNG

Case 3                                               70
Creating Happy Customers by Call Center Technology
dataÿtext and image is possible. The convergence of

information processing and communications technology is rapidly opening the

information superhighway for business. We are entering an era of unique

opportunity -     opportunity that can mean tremendous challenges and

potentially many problems for an insurance company - or - opportunity that

can be used to create new levels of customer satisfaction and major business


            At presentÿthe Hong Kong insurance industry is experiencing

extreme financial pressure with profit increasing difficult to predict and

achieve. Financial pressure are stemming from weakened investment

performance,      intense   competition,     and    processing     inefficiencies.

Nontraditional competitors and new entrants in the marketplace are the

sources of further driving down the profitability of the existing players.

1.1        Objective of Study
which will demonstrate the effective applications of IT.

12      Scope of Study

          The scope of this study is confined to general insurers and life

insurers in the insurance industry. In terms of annual gross premiumÿthe top

10 general insurers and top 4 life insurers in the marketplace are selected for

this study.
  ‘"the acquisition, processing, storage and dissemination of vocalÿ

pictorialÿtextual and numeric information by a micro-electronics based

combination of computing and telecommunications".

           N. Caroline Daniels in his book 'Information Technology" gives

two definitions to IT. The firstÿthe intensive definition, is limited to the

hardware and software of computers. It relates to the physical characteristics

of ITÿsuch as electronicÿdigitalÿtelecommunications, printersÿprocessors,

screens and so on. The secondÿthe extensive definitionÿconcerns what the

equipment is used for. IT is the application of technology to business processes,

gathering data and creating information that is valuable that is valuable to

managers who make business decisions. IT translates symbols into a usable

22 The Influence of Information Technology

           There are few aspects of life nowadays which are unaffected by IT.

In the officeÿfactory or at home, visiting a bankÿsupermarket or garage and in

many other places. IT is used to carry out transactionsÿprovide information,

record dataÿmake decisions and perform an ever increasing range of tasks,
including organization and Management Information System (MIS).

            One of the most critical ways IT affects business is in changing the

nature of competition. Michael PorterÿHarvard Business School professor and

eminent author in the field of business strategy, has written that '"the

information revolution is affecting the nature of competition in three vital

 wÿayÿs

            It changes industry structure and alters the rules of competition ...

by increasing the power of buyersÿraising barriers to entry, and influencing

the threat of substitution.

            It creates competitive advantage by giving companies new ways to

 outperform their rivals ... by lowering costsÿenhancing differentiation and

 changing competitive scope.

            It spawns whole new businessÿoften from within a company's

 existing operations ... by making new business technologically feasible,

 creating derived demand for new products and creating new business within

 old ones (Porter and Millarÿ1985).

  23 What is an Information System?

             An information system (IS) may be defined as "a method of deliver

  and transform raw data into information in a form we can use”. An

  information system is a method of delivering information from one person to

  another. It does not equate to any particular technology. IT is just the

   technological apparatus that makes it happen.
— These are computer and electronics based

   systems for recording, processing and reporting on the day-to-

   day activities of the organisation. Examples include; ledger

   keeping, payroll, barcode readers, and                automatic teller


2. Office Support Systems - These systems provide day-to-day

   assistance with the functions of the office. Examples include;

   word processingÿelectronic mailÿtelephonesÿand fax.

3. End-User Systems           N    These     systems       seek   to   provide

   management with direct assistance with their work. Examples

   include; Decision Support Systems, Expert SystemsÿExecutive

    Information Systems.
insurers in Hong Kong are exploring how to use IT

as a vehicle to sharpen or regain their competitive edge. A detailed discussion

on effective application of IT by Hong Kong insurers is covered in chapter 8.
 the Insurance Companies Amendment (No3) Ordinancel994 and Personal

 Data Privacy Ordinance and Mandatory Provident Fund Act (MPF) have been


             The background information and some useful information and

 statistics of The Insurance Authority of Hong Kong and Hong Kong

 Federation of Insurers were downloaded from their internet web sites.

2. Primary Data

             Due to the fierce competition of the Hong Kong insurance marketÿ

 some sensitive information is not available. It is therefore necessary to arrange

 meetings with relevant parties for the purpose of getting primary data.

 Interviews had been conducted with senior management of the top ten general

 insurers and IT Managers and Special Project Managers of three life insurers.

 The interviews were designed in an informal style. Some constructive

 questions had been asked. Questionnaires were distributed to and completed

 by the interviewees during the interviews.

             Those interviews were proved successful as the author gathered

 many important data that were helpful to the completion of this research.
           insurers in Hong Kong were working in a stable

and highly regulated environment. The trade associations such as Accident

Insurance Association took the role in providing standard policy wordings and

tariff premium rates for its members. Insurers charged the insured almost the

same level of premium and provided standard cover for some major classes of

insurance i.e. Motor Insurance and Employees Compensation Insurance.

Competition at that time was gentlemanly. Customer was not the primary

focus of the management. Information technology had a low profile in

insurance industry in comparison with banking and airlines industry.

           Today the commercial environment in which insurers doing

business is changing rapidly. The dominant force is regulatory change. Some

important regulations that were passed by legislative council in recent year

affects the increased competition that insurance companies face as a result.

Regulatory change enhances insurers invest more in information technology so

as to response to its changing environment.

Insurance Companies Amendment (No3) Ordinance 1994

           The Insurance Companies Amendment (No3 ) Ordinance 1994 was

enacted on 7 July 1994 and came into effect on 30 June 1995. It brings into the

regulatory regime a framework for the supervision of the self-regulation by the

insurance industry of insurance agents and brokers.

            The provisions dealing with the self-regulatory system of insurance

agents have significant impact on those insurers whose main source of

business is mainly contributed through agents.
          an insurer is required to keep a register of

appointed insurance agents and to record in the register details of insurance

agents it has appointed.

 Under section 67ÿt he Hong Kong Federation of Insurers (HKFI) is required,

with approval of the Insurance Authorityÿto issue a code of practice for the

administration of insurance agents.

          Section 68 has clarified that an appointed insurance agent is the

agent of the insurer. An insurer is not able to exclude or limit its liability for

the actions of its appointed insurance agent in the dealings for the issue of a

contract of insurance and insurance business relating to the contract.

           While the objective of the Amendment Ordinance was to promote

the professional standard of the insurance participantsÿit also changed their

way of doing business.

            The cumbersome agent registration system and the requirement of

keeping a proper agent record push insurers using information technology to

help them solving the problems.
           an insurance agent cannot represent

for more than four insurers of whom no more than two shall be life insurers.

While on one hand insurers are very carefully in selecting agent as they may

have to bear their agent's liability in the course of selling insurance products

and delivering services. An agent will also choose to represent an insurer who

can provide full range of insurance productsÿattractive commission terms and

high quality of services to him and policyholders. Insurer with advance

information technology and comprehensive information system is standing in

an advantageous position to recruit good quality agents.

The Personal Data (Privacy) Protection Ordinance

          The Personal Data (Privacy) Ordinance was enacted on 3rd August

1995 and came into effect on 20th December 1996. One of the principal

reasons for introduction of the new privacy law is to protect individuals from

the abuse of personal information collected about them. Information collected

about somebody for one purpose cannot be used or sold on if it is to be used

for a different purpose.

           All practicable steps shall be taken to ensure that personal data

(including data in a form in which access to or processing of the data is not

practicable) held by a data user are protected against unauthorized or

accidental accessÿprocessing, erasure or other use having particular regard to:

           • the kind of data and the harm that could result if any of those

               things should occur;

           • the physical location where the data are stored;

           • any security measures incorporated into any equipment in which

               the data are stored;

           prudence and

               competence of persons having access to the data; and

           • any measures taken for ensuring the secure transmission of the


           Insurers will find that the Ordinance goes to the very roots of their

functions or businesses. While in determining an insurance application be

accepted or not, particularly in personal insurance like motor insurance,

personal accident insurance, travel insurance and life insurance, an insurer

may request the applicant to submit substantial personal information for their

underwriting consideration.

           The traditional method of keeping insurance application forms and

policy copies in file cabinets is not secure. As data usersÿinsurers will have to

establish new system to comply with the requirements of the Ordinance.

Document imaging technology is a cost-effective way for insurers to solve the


Mandatory Provident Fund Scheme Ordinance (MPFSO)

            The Mandatory Provident Fund Scheme was enacted on August

1995. The Provisional Legislative Council had passed the subsidiary

legislation on May 1998ÿwhich will implement the Mandatory Provident Fund

(MPF) system. It is expected that the MPF System will come into operation in


            MPF System is an employment related contributory system

providing for retirement protection for the workforce of Hong Kong.

Contributions are to be managed and invested through the private sector.

Under this system each MPF System will have to be governed by trusts and

the need to

have a tailor-made computer system for supporting the daily MPF System

operation has enhanced trustees like insurers making substantial investment in

computer and software development.

animates the positioning of the

company in its industry, clarifies the areas where strategic changes may yield

the greatest payoffÿand highlights the places where industry trends promise to

hold the greatest significance as either opportunities or threats.

and often-substantial resources. Prices can be bid down or costs

inflated as a result, reducing profitability.

depending on whether a general insurer carries on compulsory

insurance or not. Life insurers are required to maintain a minimum solvency

margin of HK$2 million.

          In addition to the statutory requirement on capital investment, set up

cost is depending on the size of the company to be established. Life insurers

may need to invest heavily in advertising and recruiting full time agents so as

to build up its image and penetrate into the market.

          In recent yearsÿnew comers to the industry are international firms or

those with very strong financial background; they have sufficient financial

resources to enter into the Hong Kong insurance marketÿthe extent to which

capital requirements create entry barriers to new entrants is therefore


Access to distribution channels

a person who wants to act as an insurance agent must be

appointed by an insurer and registered. The number of insurers to be

represented by an insurance agent at anyone time is limited to four. Most of

the agents in the market place have completed their registration with

maximum number of representation. Existing insurers strengthen the

relationships with the existing channels by providing attractive commission

terms and high quality service. Insurers like Bank of China Group Insurance

and Asia Insurance have built up their exclusive distribution channels through

parent company's banking networks.

          New entrants may find it difficult to market its products by using the

existing channels. In order to secure distribution for its productsÿnew entrants

need to establish its sales force that may involve substantial investment, in

particular for life insurers. Thereforeÿto certain extent access to distribution

channel can create barrier to entry.

Product Differentiation

           No    matter   general      insurance   or   life   insuranceÿ product

differentiation has little effects on creating entry barriers. Traditional general

insurance products like fire insurance, motor insurance and travel insurance,

life insurance products like whole life and endowmentÿthe insurance coverÿ

protection and benefits are similar. Even some insurers try to design new

productsÿit can easily be copied by competitors in very short time.

Cost disadvantages independent of scale

sometimes it is

painfulÿthat leads them to a cost disadvantage position.

Government Policy

           Government policy has always been the major source of entry

barriers. Government can limit or even foreclose entry into industries with

such controls as licensing requirements and limits on access to raw materials.

           The Chief Executive pledged in his 1997 Policy Address that under

the "One CountryÿTwo Systems" principle, the Government of Hong Kong

Special Administrative Region would endeavor to further develop Hong Kong

as a major international financial center with a world class supervisory regime

and a business-friendly environment.

           The Insurance Company Ordinance provides the regulatory

framework for insurers operating in Hong Kong. Any person wishing to carry

on insurance business in or from Hong Kong is required to comply with

certain regulations. They include Authorization, Solvency Requirementÿ

Fitness and Propemess of Management, Maintenance of Assets in Hong Kong,

Statutory Valuation Basis for Assets and Liabilities, Submission of Financial

Information and Intervention. The objective is to inspire public confidence in

          being one the most important insurance centers in the world,

there have long been more than two hundred insurers from all over the world

competing in the market place (Appendix 1).

 Year       General       Life Insurer       Composite          Total
            Insurer                           Insurer
 1993         170              40               19               229
 1994         169              41               19               229
 1995         161              42               20               223
 1996         158              46               15               223
 1997         151              45               19               215

          Leading insurers in the world already set up its offices here, not

only because they have interest in Hong Kong marketÿbut also they have

perceived the huge potential of China market. NaturallyÿHong Kong is the

most important base for them to well prepare for entering the China market.

          Out of the two hundred insurers, more than one hundred and fifty

are general insurers. Though general insurers are numerous, only fifty percent

of them are active in the market. The top twenty insurers dominate the market

with more than sixty percent market share. As they all have strong financial

support and large capacityÿthey are able to sustain price competition for a long

period of time.

the gross premium derived from manufacturing industry had shrunk in recent

years. The booming of general insurance market of the 1980s is past. As

general insurance market matures its growth rate declines (Appendix 2).

General insurance business experienced a decline in premium in 1996 for the

first time in the past five years. Total gross premium dropped by 7% to $18.7

billion as a result of keen competition among insurers.

          Unlike general insurance business, though market competition is

fierceÿlife insurance business is still attractive. In terms of office premiums

and number of policies, life insurance business recorded two-digit growth

continuously in the past four years (Appendix 3). In 1996ÿthe number of

individual life contracts exceeded three million for the first timeÿwhich

represented 49% of the Hong Kong population. In consideration of more than

50% of Hong Kong people do not have life insurance protection and the MPF

market to be operated in 2000ÿthere are still more rooms for life insurers to

improve their performances.

           Thirdly, it is not easy for an insurer to differentiate itself from

competitors by providing unique insurance product. Types of insurance and

covers provided by insurers are similar to each other. The way insurers are

frequently used is to add value to the insurance policy. An outstanding

motor insurers also provide fringe benefits to add value to the policy. Such as

personal accident insurance cover to the driver; No Claim Discount protection

cover; new for old cover for private car within the first year of registration in

the transport department etc, all are free. Other insurers even provide free

service such as 24-hour road - side towage.

          Though some insurers have tried very hard to design new products,

it can be copied easily by its competitors.

           As insurance products are lack of differentiationÿinsured's choice of

insurer is largely based on price. In order to maintain market position or even

outperform its competitorÿinsurers competing in price war. The case is

particularly serious in general insurance business.

           Fourthly, as a result of excess reinsurance capacity around the

worldÿinsurers are easily to obtain reinsurance supports. Reinsurers are

willing to accept reinsurance from insurers at low premium rate. Reinsurer's

attitude on accepting business can be seen as an enabler of driving down the

market premium.

           Fifthlyÿthe exit barrier is high. An insurer who ceases business

venture in the insurance market does not mean that its liability ceases

simultaneously. He has to honor all outstanding claims that reported to him

previously. For those insurers writing liability insurance for example motor

insurance and employees compensation insurance, they have to maintain an

office for run-off operation. The run-off period could be as longer as ten years.

For life insurersÿunless they can find a buyer to purchase its whole portfolioÿ

the greater will be the elasticity of demand.

           To understand the threat of substitute productsÿthe first thing we

need to do is to identify substitutes. Identifying substitute products is a matter

of searching for other products that can perform the same function as the

product of the industry. Substitutes limit the potential of an industry by placing

a ceiling on the prices firms can charge.

            Substitution is the most difficult competitive force to anticipate

and when it happens, it is usually the most devastating of the five forces

because it fundamentally changes the rules of the game. For many

international airlines the major contribution to their profitability comes from

the business class passengers who pay significantly more than economy class

passengers. Video conferencing would be a good example of competition by


           As far as insurance industry is concernedÿcaptive insurance is a

form of substitution as is the use of the capital markets as a vehicle for risk


           In the Insurance Companies (Amendment) Bill 1997ÿ“Captive

Insurer" is defined as a company which carries on general insurance business

captive insurers do not constitute a threat to the existing insurers. But the

present situation is expected to be changed in the coming years due to the

Government's intention to promote Hong Kong as a niche market for captive


            In his 1996-97 Budget Speechÿthe Financial Secretary highlighted

the importance of maintaining and enhancing the status of Hong Kong as

world-class financial center. To this end, one of the initiatives taken by the

Government as published in “Action Agenda" of the Budget Addendum was

to encourage the development of reinsurance and captive insurance business in

Hong Kong.

            To this endÿa Working Group on Reinsurance and Captive

Insurance (Working Group)ÿchaired by the Secretary for Financial Services

and comprised experienced insurance and financial practitioners and the

Insurance Authority, was set up in May 1996 to advise the Government on the

ways and means to promote these two types of insurance business in Hong


            As regards captive insurance business, there are currently about

3,400 captive insurers in the world and only a small portion of them have

established their presence in Asia. The number of captive insurers is forecast

to grow to 4,000 by the year 2000. As Hong Kong meets most of the criteria
          the Insurance Authority implemented a series of

promotional measures recommended by the Working Group. The most

important one is regulatory concessions for captive insurers.

          The concessions offered to the captive insurers in the Insurance

Companies Ordinance include the following:

          •    The minimum capital requirement is HK$2ÿ000ÿ000 as opposed

               to HK$ 10?0007000 for general insurers;

           •   The Insurance Companies (General Business) (Valuation)

               Regulation, which sets out prudent valuation and admissibility

               criteria for different categories of assetsÿdoes not apply to

               Captive Insurers;

           •   The minimum solvency margin is HK$2ÿ000ÿ000 as opposed to

               HK$10ÿ000ÿ000 for general insurers; and

           •   The requirement for maintaining assets in Hong Kong under

               Section 25A of the Insurance Companies Ordinance does not

               apply to Captive Insurers.

           In addition, a captive insurer is further exempted from the

requirements set out in the Authorization Guidelines to demonstrate to the

Insurance Authority before authorization that:

           •    It has undertaken a feasibility study in respect of its proposed

                operation in or from Hong Kong;

           •    It would not engage in a 'fronting" operation; and

           •    It would be managed and operated independently of its group.

and provision of

tax incentives are effective measures for the promotion of captive insurance

business in Hong Kong.

          Though the Hong Kong economy as a whole will benefit from the

promotion of captive insurance by bringing in capital funds and creating job

opportunitiesÿthe development of captive insurance business will also enhance

the intensity of market competition that existing insurers should not overlook.

5*5     Suppliers in the Insurance Industry

           On the suppliers' sideÿapart from the most important factors of

production land, labor and capital, reinsurers and IT companies are also the

influential suppliers.

           The power of reinsurer is depended on the market environment. In

early 90sÿas a result of catastrophe accidents occurred frequently around the

worldwide insurance marketsÿreinsurers suffered substantial losses. In order to

recover their lossesÿapart from tightening the reinsurance capacity provided in

the insurance marketÿthey also raised the premium substantially and imposed

restrictive terms and conditions to the reinsurance contracts. Reinsurers'

measures for improving underwriting results directly affected insurers

business as it increased the operating costs and reduced the flexibility of

insurers. Reinsurers' bargaining power was powerful at that tough period.

            because of excess reinsurance capacities in the worldÿ

the reinsurance market was becoming soft. Reinsurers bargaining power is

gradually reducing.

            IT companies including manufacturers, systems integrator, or niche

software providers are important to an insurance company who heavily relies

on information technologies to create competitive edges.

            Instead of examining whether a supplier can exerts power over a

customer, we should treat the customer-supplier relationship on a peer to peer

basis and not master-slave. Managing the supplier relationship well would

provide the insurance company with access to scare resources and knowledge

and thus be a basis of competitive advantage; managing the relationship in a

traditional manner or not managing it at all constitutes a threat to the business

and is the basis of competitive of disadvantage.

5.6      Buyers in the Insurance Industry

            Buyers in the insurance market consist of ultimate consumers N t e

policyholders and intermediaries N insurance brokers and insurance agents.

They are increasingly demanding and sophisticated. The bargaining power of

t e buyers is strong for many reasons:

             •    There are numerous insurers in the market competing for

                 business. Most of them are eligible to provide full lines of

                 insurance products and services to the potential insureds.

                 Insureds have more choice to arrange their insurance matters.

             •    As mentioned earlier in this chapter, insurance products in the

                  market are similar and less differentiatedÿan insured will have

most often, the insured can have

savings and more coverage by switching to an aggressive


Insureds are well informed of the market situation. By way of

appointing insurance brokers on their behalfÿcorporate insureds

can get the up-to-date market information. As a result of the

advertising campaigns launched by direct insurers in recent

years, such as direct motor insurance schemes initiated by AIU

and Carlingford Insurance (now known as Hong Kong Bank

Insurance), an individual insured can easily obtain motor

quotations through the hot line service provided by the direct

motor insurers. Not necessary an insured's intention to switch

insurer, but he can compare the price and exert pressure on the

existing insurer to reduce price.

Powerful large conglomerates and agents engage in the practice

of backward integration pose a credible threat to the existing

insurers. The formation of Bank of China Group Insurance

Company was a good example. In view of the huge premium

size and profitable business that were usually introduced to its

business partner China Insurance Group as an agent, in 1993

Bank of China Group formed a subsidiary company namely

Bank of China Group Insurance Company to provide general

insurance services to its clients directly. In 1997ÿBank of China

            the broker may generate profit to the

            group from participating in the insurance brokerage business.

        •   Insurance agent and insurance brokers with large premium

            portfolio and quality business e.g. fire insurance, marine cargo

            insurance are most powerful. They have influential power to

            insurers in demanding favorable commission terms and more


        In the fast changing environmentÿcustomer priorities change

quickly. To gain competitive edge over the othersÿan insurer must keep up

with the changing patterns of customer demand. To be genuinely customer

focused requires a significant investment in customer care behavior and

information systems and technology that support it.

         To concludeÿwith the numerous insurers in the marketÿthe low

entry barrier, the cut-throat rivalry among existing insurers, the declining of

industry growthÿthe increasing threat of substitute products, high pressure

from managing the suppliers relationshipÿand strong bargaining power of

insureds and intermediaries, the competition in the Hong Kong insurance

market is fierce.

          we try to find out insurer's attitudes to the role of

technology in strategic issues such as improving customer serviceÿincreasing

productivity and quality of employeesÿincreasing underwriting speed and

efficiency, developing new products quickly            and   adding alternative

distribution channels. In addition, we shall explore the effectiveness in using

technology and the future use of technology.

          In order to obtain first hand informationÿa questionnaire was

designed in accordance with the above issues. The questionnaires were

distributed to and completed by the interviewees in the course of interviews.

There were totally 13 respondents including 10 general insurers and 4 life

insurers. Although the sample size is smallÿin terms of market share by gross

premium, it has represented 50 percent and 60 percent in general insurance

market and life insurance market respectively. Thereforeÿto a greater extentÿ

the survey results have reflected insurers' opinion on the role of technology.

Technology's Role in Strategic Issues

           Respondents said technology plays its most important role today in

addressing these strategic issues:

           •    Increasing excellence in customer service (86%)

           •    Increasing productivity and quality of employees (85%)

           •    Increasing underwriting speed and efficiency (71%)

           •    Competing with New Entrants (78%)

            • Customer Service (93%)

            • Increasing productivity and quality of employees (93%)

            g Competing with New Entrants (78%)

The Role of Distribution Methods

            L i f e insurers reported that exclusive full-time career agents (93%)

play the most significant role. General insurers considered that independent

agents (86%) and banks and other financial institutions (71%) also play a key


            Other     methods      of    distribution     ae
                                                           r   viewed     to    become   more

significant i n the next three to five years. Though full-time career agents w i l l

continue   playing     the      most    significant          
                                                        roleÿlife insurers said financial

institutions (78%) are expected to continue to increase their role.

            Both life and general insurers agreed that direct mail or other direct

non-agent marketing (85%) is the most important distribution method in the


            Electronic commerce (85%) and direct marketing (93%) by home

personal computers are considered to be an important role of distribution

methods in the near future in view of the significant growth of internet

subscribers in Hong Kong.

85% said they

expect the field agent staff to enter this data within 3 to 5 yearsÿleaving 21%

of the companies expecting centralised head office activity.

         A similar number said amendments would be performed in the field in

the future.

          Today, most respondents said their companies5 basic underwriting

occurs in the head office. In the future, howeverÿ43% of the companies expect

basic underwriting will be performed in the field. 50% of the companies said

they expect head offices to continue performing basic underwriting.

              Currently only 21% of agents have access to client data files, though

almost 50% of the companies expect to provide such access in the next few


              A significant shift in policy issuing from the head office to agent is

unexpected. Todayÿmost respondents (85%) said policies are issued in their

offices. 29% of the companies expect the office to continue issuing policies in

the near future. 64% of companies said policies would be printed in the field.

respondent saidÿwill be very important

for each of the following areas:

Establishing better client                           93%
communication and relationships

Performing needs analysisÿfinancial planning         71%

Improving field force efficiency                     86%

Target marketing                                     64%

Improving sales management                           78%

Improving field communications                       85%

Supporting additional distribution channels          71%

Technology's Performance

           When asked where technology has been used to improve an activity

or function, respondents rarely reported that technology exceeded or far

exceeded their expectations. Most of them replied that technology did not

meet their expectations.

           Technology had failed to meet respondents' expectations in

prospecting (7%) and performing needs analysis and financial planning (14%).

           For one activityÿretaining the field forceÿtechnology has not been

used by 90% of the companies.

though respondents expect usage to decrease in the next three to five years,

suggesting that other technologies may pick up part of the current work of fax


            93% of the companies said they frequently use mainframes linked to

personal computers. Using networked personal computers will rise in three to

five years.

            Electronic mail is frequently used by 71% of the companies and is

expected to grow in the near future.

            Respondents said they expected usage to increase significantly over

the next three to five years for these technologies:

            Scanning or imaging devices

            Expert system tools

            Multimedia presentation

            Videoconferencing •

Effectiveness of Technology

              None of the respondents said their companies have been very

creative or unique in its use of technology. 43% of the respondents said their

company has been fairly effective in using technology. 50% of the companies

answered not too effective.


(1984) suggested five important questions that a firm might ask itself. In this

survey, I asked the interviewees the same questions and have consolidated

their answers as follows:

  especially for life insurers. It is possible to produce economies of scale

  that competitors cannot matchÿbut this is becoming difficult.

2. Can the IS technology build in switching costs that customers would

   have to incur if they switched to alternative source of supply?

   Yesÿbut new comers seem to be better positioned than incumbents.

3. Can the information technology change the basis of competition?

  Yes, but this requires a culture change by insurers.

4. Can the IS technology change the balance of power in supplier


  Yesÿ  p articularly   for   long-established   insurers       with   sophisticated

  information systems.

5. Can the IS technology generate new products or services?

   Yesÿbut new entrants seem to be better positioned than incumbents.

           McFarlan further suggests that there are five main reasons for

incurring IT spending, which are listed below:

                                Growingÿ      Relatively          Static or
Goal of IT spending               highly     Stable industryÿ     declining
                               competitive   known ground          industry
                                 industry         rules
Rehabilitate and                     1               1                  1
maintain system
Experiment with new                2                 3                  3
Attain competitive                 2                 2                  3
Maintain or regain                 2                 3                  4
competitive parity
Defined return on                  3                 3                  5

1 = of primary importance, 5 = of least importance

banking and insurance.

 On the other handÿsome firms may view IT as a supporting technology. For

example: law firms.

          Firms in the factory category are those taking advantage of

computers to process huge quantities of information in a routine manner.

Companies in the turnaround quadrant are those who are finding that IT is

we must bear in mind that a good strategy cannot be

formulated without reference to its internal and external environment.

Uncontrollable variables like competitive environment, economic and

technological environment, political and legal environment, cultural and social

environment, and the resources and objectives of the firm must be taken into

consideration as they are interconnected.

I have to keep the identity of both insurers of being

anonymous. HenceÿAAA, BBB and CCC are used to denote the insurer in the

firstÿsecond and third case respectively.

Case 1: Alignment of Information Strategy and Business Strategy

1) Background

           AAA is a composite insurer transacting both life and general

businesses. In order to optimise its resources and economies of scales, AAA

integrated life and general businesses. As a resultÿthe internal environments

including structure, staffÿculture and systems had to undergo changes to

maximise its business opportunities for cross selling life and general insurance

products to different distribution channels.

to close the communication gap of its agent by

creating them business partner and providing them on-line information and to

optimise processing capacity.

          In 1995ÿAAA reviewed its life and general systems. Both systems

were commented as old and outdated. Number of weaknesses had been

identified against three perspectives and objectives are then set to eliminate

and improve them,

2) Weaknesses of existing systems

          The general business transactions were processed by the fiTYÿÿ

insurance system while the life business transactions were processed by the
  EL" system. The CTY" system was an insurance application software package

developed on the Concurrent Computer in the beginning of eighties. AAA

started implemented this system in 1984. The '"EL" system was run on the

IBM AS/400. The system originally developed by AAA overseas in the early

eighties on the IBM S/36. Both systems were commented as old and outdated.

Due to the dynamic changes of the business environment and the development

of advanced technology, the systems could no longer provide enough

functions and flexibility to meet AAA's business requirements.

           Strategic and effective use of information technology was

recognised as critical success factor to the achievement of the business

development objectives for AAA.

           an evaluation of IT strategies was performed against three

perspectives     N Business                 
                                    SupportÿHardware and Software. They were

commented as follows:

Business Support

User Friendliness
           Both 'TY" and         EL" were not user friendly systems. They were

difficult to learn and understand. On-line help information was not available

for reference. On-line search of any tables or codes such as occupation codes,

clauses numbers were not available during policy data capture. It lengthened

the familiarisation process of policy issuing. New staff needed to refer to hard

copy to obtain the information before they could memories these codes.

Inadequate Functionality

           The systems designed in the early eighties merely aimed at efficient

processing of documents. The current life and general systems were outdated

and they lacked sufficient functions to meet the fast changing competitive

business environment.

Lack of Integration

            The functions such as the accounting systemÿpolicy issuing and

alternations in the ‘"ELÿÿsystem were not fully integrated.

Lack of On-line Management Information

            The regular monitoring and the control of the business performance

are essential to the success to the business. On-line management information

provides management a useful tool for monitoring and control of business
performance. Although the                 TY" system provided claims and policy

‘TYÿÿsystem
                   PYÿÿsystem on the Concurrent Computer was an obsolete product

from Continuum. The risks and problems in maintaining this system were

identified as follows:

                • Support Problems

• Lengthy development process

Development and maintenance effort on the ‘Tolicy System" using

“Cobolÿÿwere comparatively inefficient when compared to more

modem platforms such as AS/400 using RPG/400.

• Lack of on-line management information

Although transactions' inquiries were available, the information

were not grouped or consolidated in the meaningful way for

business analysis and management decision.

Lack of user friendliness and slow data entry process

The data input/inquiry process was complicated. On-line help

information was not available. There was fixed sequence of screens

that the user must go through while entering any types of

transactions. It ultimately took long time to train a staff to

familiarise with the system.

The user had to remember the numerous codes such as occupation

codes, clause codes and renewal codes by heart while they were

entering data into the system. Even though users knew where to

obtain data from a specific screen, they were not forced by the

system to go through a fixed sequence of screens to end the inquiry


         •       Inflexible and lack of sufficient functions to cope with changing

                 business environment

         The system lacked the flexibility to incorporate new functions

         easily. Rapid changing business needs and decisions symbolised a

         fast moving society, in which a quick response to marketing

         situations is important. HoweverÿAAA's ‘TY” application system

         could not cope with the pace for these changes as it took month(s) to

         modify or built a function for handling complex business


         The existing functions were not sufficient to align with the planning

         business development activities. Some examples were given as


         > It was commented to have too many limitations such as unable

                 to accept occasional and initial premium by cheques.

          > There was no partial name/description search for data such as

                 policyholderÿclaimant, agentÿbrokerÿreinsurer and risk

                 situation. It had significant impact on the overall operation


          • Growth limitations

          The application had a limit of maximum of ninety terminals

          attached to the on-line system.

Total Database

          "Total" on the Concurrent Computer was an obsolete product from

Cincom and the risks and problem were identified as follows :

             •    Support Problems

                 the software was no longer supported by the

                 vendors and was not compatible with the latest release of the

                 operating system. Unpredicted system errors might impose major

                 interruption to system service for end users.

                 •   Non-relational database structure

                 ‘"Total” was commented as database with inflexible structure. Non-

                 relational database structure made it difficult to extract and process

                 data in an effective and preferred manner.

                 •    No Query language

                 There was no structured query language for 'Total" on Concurrent

                 System which could be used for quick browsing of database for

                 some ad hoc simple reports for management decision.

                 •   Database expansion problem

                 Database files hitting load limit would cause to hang up the system.

                 Physical files were allocated within predefined fix amount of space

                 for creating records by application systems. The capacity and

                 growth trend of each physical file had to be closely monitored to

                 avoid hitting the load limit during on-line/off-line processing.

                 The file expansion process was lengthy and complicated. Data had

                 to be first unloaded to a temporary file and then reloaded back to a

                 destined expanded file. A large data file could take more than

                 eighteen hours to expand.

‘TBLÿÿSystem

                 The system had been running for more than ten years. Although the

           system was running on the AS/400 computer systemÿthe system itself

 EL" system were identified as follows:

          • Limitation of Agency Hierarchy

         The existing agency system had a hierarchy of 3 levels. It

          significantly limited the growth and development of AAA's life

          agency force.

          • Internal described database file

          The key data files in the system were flat files and internal described

          in programs. Any changes to the file record format might involve

          significant effort to modify numerous programs referring to this

          particular file. Some examples were given as follows:

          > Each policy was only allowed to have a maximum of 6 riders.

              At least 3 months was required to modify the system to store an

              additional accident rider in a policy record.

          > Adding an additional layer in the agent hierarchy required at

              least 6 months' system work since changes had to be made to all

              the major subsystems.

          •     Lack of on-line functions
          The     EL" system was mainly lj batch-oriented system and major

          processes were run a nightÿIt was regarded as an obstacle to speed

          up and improve the quality of AAA's customer services. Some

          examples were given as follows:

          > When all necessary transaction data were captured by the

                systemÿthe policies had to pend to be printed at each day end;
• Lack of integration

Subsystem did not communicate with each other e.g. the new

business system could locate a client's existing policies with their

companyÿbut new business staff had to re-enter the policy numbers

into the filing system for policy paper file retrieval.

Different types of information were located in different reports e.g.

persistency, case count and premium produced by districts, teams

and individual agents were printed on different reports.

The system was also full of inconsistencies e.g. production statistics

did not match because of different inclusion criteria and exchange

rates being used for reporting.

• Insufficient information for processing efficiency and service

     quality improvement

Important client information such as home and office phone

numbers, pager numberÿfax number, medical history and income

were missing from the policy master file. Since some modules were

not fully automated e.g. loan processingÿsome of the data were still

kept in paper files.

The system did not keep an accurate history of all changes to a

policyÿor the premium and commission history of a policy.

Limitation of accounting functions

which could be named were:

> commission was not differentiated by initialÿfirst, second and

   renewal year;

> unable to clawback overriding commission for agents

> unable to accept monthly payment by cheque or credit card for


> unable to pay miscellaneous commission to brokers other than

   basic or overriding commission;

> no suspense account for future premiumÿ

> no partial settlement account ledger; and

> difficult to identify loan repayment.

• Lack of user friendliness

The       system was written in old-fashioned system/36 mode. It

did not provide a very user-friendly interface. Help information was

not available for input screens. As the command keys were not

displayedÿusers needed to memorise them accessing different

functions. Inquiry and data entry screens were also typically

scattered with codes that were not meaningful to the users e.g.

policy status 'a? means inverseÿ'b' means reinstatement etc. The

time required to learn such system was long and the chance of

entering a wrong code by mistake was high, It could be costly in

departments where staff turnover rate was high.

• High maintenance costs

Different field names were used in different programs for the same

item in a file and no accurate cross-reference was available. Making

         a lot of system enhancements and program patches

         had been performed with little documentation. Learning the whole

         system and the rationale behind the construction of particular

         program codes typically took years.

          • Insufficient system functions to meet business requirements

         Some function were not automated e.g. alterations on ridersÿ

         reinstatements, loan processing and policy maturities processing.

         They system was originally developed by AAA overseas. It could

         not be able to meet all local requirements in order to run the

         business in an effective and efficient manner.

4) IT strategy for system re-development

          Against the background of the above evaluations, the following

objectives were set for AAA's IT strategy

Business Support
•             To meet the business needs of AAA*

• To be implemented with minimum disruption to the existing business:

       IT activities scheduled in accordance to business priorities

       Balance with system maintenance and system re-development

• To create competitive advantage by maintenance systemsÿwhich


       High productivity

       Lower cost

• To increase processing capacity by increasing efficiency and productivity's

    of back office function:

       > able to handled more volume/transactions with the same head count

          •        Life new business — projected processing capacity in 1997

          which was 66% increase compared to 1995

          •        Life policy inquiry — more information system such as

          premium status and pending items were available on the new policy

          tracking. It would eliminate about 50% of inquiry.

          •        General business underwriting transactions               N   projected

          processing capacity i n 1997ÿwhich was 38% increase compared to


          •        General Business M S            the on-line M I S system provided

          comprehensive     management        information.   t
                                                             I    could    eventually

          eliminate s m of the reports, which were formerly prepared by

          Accounts Department.

       >Automation of manual functions

              •    To automate the manual functions such as changes of

              premiumÿrider, product coverage in the policy alteration


• To contribute to improving the quality and speed of service by reducing the

time for processing a business transaction as follows:

      > Policy issuing

      •                                                 e
              Life new business Npolicy schedule could b printed on-line

     upon request

      •       Life new business - with data validation for simple

      underwritingÿit simplified the policy issue process for some clean

      cases and ultimately speeded up the time to issue a policy.

      •       General business N flexibility were built on policy data

      capture. Users would have lots of on-line help information and

                  o       o
      they might n t need t follow afixed sequence for entering policy

      data. Number of data capturing screens for apolicy would b kept

      to minimum.

      •       General business           N     quality      services   such   s
                                                                              a   on-line

      information, user-friendly policy issue system would b provided

      to agents t strengthen the business partnership relationship.

> Premium reconciliation

      •       General business — flexible premium collection methods

      would be built on direct debit billing system. It would eliminate

      some manual work from Accounts Department. Moreover, as more

      premium information was provided, it could assist account

      staff/development staff to follow-up the rejected transactions


> Inquiries

      •       Life policy inquiry N more information available on the new

      policy tracking system such a premium status and pending items

      provided prompt response to customers and agents.

           •      General policy inquiry - allowing user to inquire on selected

           information pageÿsuch as policy header, risk detailsÿmessage and

           premium would reduce at least 60% of current policy inquiry

           processing time. With the existing systemÿusers were forced to go

           through a fixed sequence of screens for all valid policy


     > Claims

           •      Life claims — policy history information were available and

           linked up for checking for validity of cover.

           •      General claims         N   itemised   claims       reserve,   coverage

           validationÿclaim amount validation e.g. check for applicable

           excess would improve the efficiency of claim administration


• To facilitate management control and operational planning by providing on-

line MIS covering the following:

          > MIS General N claims statistics by channel and product

          >     M I S General — underwriting profits by channel and product

          > MIS General — lapse and cancellation statistics

          > MIS Life _ claims statistics by channel and product and claim


          > MIS Life — premium statistics breakdown by channel with

               profit/non-profit policiesÿproductÿnew business/renewal years

               and single/regular premium

• To maintain and develop market competitive position by improving AAA's

    capacity to:

          > respond promptly to develop and support new product launches

          > improve presentation and response time of quotation system

          > evaluate sales and profitability by channel and product

          > provide on-line information to key business partners

• To develop synergy between the Life and General businesses by facilitating

the integration of information and business processes

          > combined agent statement

          > combined agent performance

          > combined agent database

          > common client database

          > streamlined and improved the quality of system development



• Eliminated operational risk of Concurrent Computer

• Use of reliable and new technology hardware AS/400

• Discontinued the Concurrent Computer to reduce operating cost that leads

     to subsequent cost effectiveness in long run

• To increase IT staff productivity by using new technology and development


• To reduce maintenance risks of          and ‘Totalÿÿ

• To reduce software maintenance cost such as yearly license cost of use for

    'Total" and operation system of Concurrent System

• Prompt response to market changes for launching of new products and

• To integrate planning to handle the both the life and general business as

    single entity for serving AAA's agents and customers.

5) Tactics for IT Strategy

            In order to build an integrated and best-fit system for the business,

AAA decided re-developing the system in-house. A step by step

implementation approach was adopted. The life and general insurance systems

were built on IBM AS/400 and PCs as the selected hardware platform.

6) Conclusions

After the two years implementation phaseÿthe system re-development project

has been proved successful. The new system fulfils most of the objectives that

were set before. AAA achieved a 45% business growth in 1997 and is

targeting for another 50% growth in 1998. There are certain success criteria of

the project worth to mention:

• The objectives set for the re-development project not only tackling for the

weaknesses of the existing systems, but also aligning AAA's long term

business strategy.

• All development activities are user driven and resource allocated according

to business priorities.

• Many small projects implementing concurrently to speed up the process to

replace the systems.

• Maintaining a stable team especially key staff who has extensive business

knowledge and balance re-development with the on-going business support.

• High commitment of top management on IT spending.

Case 2 Automating Business Process and Enhancing Productivity through

          Implementation of Imaging and Workflow Technology

1. What is an Imaging and Workflow System (I & W)?

           Imaging provides a means to convert paper-based documents into

computer-based image filesÿwhich can then be viewed on screen.

           Workflow is closely related to imaging and document management

systems. It provides a mean for locating and viewing computer-based

documents of all kindsÿincluding letters, spreadsheets, presentations and


           Most imaging and document management systems also provide

some form of routing or tracking facility and this is where there is some

overlap with workflow systems.

           Workflow routes, tracks and controls the business process, not just

the documents. This is an important distinction.

which could include e-mail, EDI and Internet

message, is captured as computer data immediately upon receipt. Internally

generated items like renewals and diary entries are similarly recorded as

incoming work items on the appropriate date. All work items are then

referenced, routed and controlled by the system according to pre-determined


2. Background of the case

          BBB intended to introduce an I&W to its Life operation. The I&W

would act as centralised electronic repository for life policies that enabled

more efficient access to policy documents by internal users. It would be tightly

integrated with existing insurance system in AS/400 and Xerox printer to

provide combined policy printing for contract and associated policy

documents. Moreoverÿthe I&W would provide signature clipping capability so

that new policy signatures could be clipped for verification purpose.

Furthermore, the I&W would provide workflow capability for different

business processes, i.e. policyholder servicesÿpolicy underwriting and issuing,

and claims. This enabled a more productive and administrate-able work

processes and to provide more responsive services to policyholders.

 3. Functions of the I&W

 3.1     Application Level Functions

 3.1.1   Electronic Repository for Policy Documents

etc. The I&W includes an electronic repository which is capable of

the followings:

                                      o             h
$i W e l l organised folder structure s that within t e electronic repositoryÿ

    policy documents can be stored in electronic folders and sub-folders, and

    tracked using indexes for fast retrieval.

• Index searching function to correctly identify a document e.g. policy

    number, client number, HKID number, date of birth, sex, nameÿdate of

    issue etc.

• Annotations to documents are also available.

3.1.2   Access Control

           The system is capable of assigning security strategy for user access

to documents.

3.1.3   Workflow

           The system provides workflow capability to simulate different

processes that can be found, e.g. new business underwriting and policy

service, claim etc. The system provides tools to building up the processes.

3.1.4   Data Updating with AS/400 During Workflow

           The system provides capability to integrate with AS/400 so that

during workflowÿdata can be sent to/received from insurance system AS/400•

3.1.5    Policy Printing

            Once the completion of underwriting, a formal policy set for new

business is printed for binding and distributing to clients as soon as possible.

etc) and compose a formal presentation of contract document for the policy. In

additionÿthe system is able to retrieve document images for the corresponding

policy from I&W.

          Finallyÿeach policy set composed of contract and policy documents

are combined and sent to Xerox printer for printing one by one. This replace

the existing process in policy preparation, involving contract printing from

mainframeÿphotocopying policy        documents, and       then binding    and


           Furthermore, the system is capable to do reporting, e.g. daily printed

policy, outstanding policy not yet printed, and other statistics, etc.

3.1.6   Ad-hoc Document Printing

           The system provides images printing capability so that policy

images contained in the imaging application can be printed.

3.1.7   Auditing and Reporting

           To avoid the chance of policy document miss-scanning, policy set

 miss-printingÿthe I&W provides auditing and reporting utilities so that every

 policy with contract prepared in AS/400 would have corresponding documents

 scanned and printed to send to customer.

 32      System Level Functions

the scanner is capable

to handle folded document and ensure good document quality even document

contains colour.

        Policy CapturingÿIndexing and Filing

           For years of business, BBB has over 150,000 active policies, which

comprises an estimated 1,500,000 pages volume. In order to minimise

resources take in indexingÿthe system is designed to allow automatic

document indexing and filing, details as follows:

• The system provides centralised scanning capabilityÿwith high-speed

    scanners capable of scanning document with peak volume of 20,000 pages

    per dayÿversus in normal days the volume may be 2,500.

• The system has capability to make document indexing as automatic as

    possible e.g. policy numberÿclient number, HKID, date of birthÿsex,

    nameÿdate of issueÿetc.

• The system provides enhancing capability to scanned images, e.g.

    Intelligent filteringÿcropping, de-skewing, scaling, rotation, etc. This

    allows the best quality images to be available to user for viewingÿprinting

    and faxing.

• The system is capable of automatic creation of folder and sub-folders for a

    particular policyÿcreation of document under a particular sun-folder and

    filing of document images into that document together with indexes

    undated with that document.

• The system allows quality checking on scanned images so that poor quality

    images can be rescanned.

3.2.3   Mass Optical Storage

           Since eventually all policy documents are to be filed into the I&W,

which equals to 4ÿ150ÿ000ÿthe total storage requirement for existing document

is estimated to be 170GB. To cope with future growth, a 600GB optical

storage device is required. Therefore, optical storage is needed to provide mass

and permanent storage to policy. The optical storage is an optical jukebox with

optical drives inside to reading and writing, and robotic to pick and insert disk

among magazines and drives.

3.2.4    Fast Image Retrieval

            The I&W provides a good performance in response to image

retrieving request from users.

3.2.5    Policy Data Merging with Insurance Systems in AS/400

            BBB was running their insurance system in AS/400. Everyday it

produced a lot of reportsÿe.g. cash disbursement report, bi-weekly long

pending cases reportÿmonthly exception report, etc.

            This is required that all new business policies should have their

 documents scanned and filed into the I&W before later on policy printing can

 be taken place. Therefore, the system has administration capabilities to

 maintain information of daily new business policiesÿand most importantly,

 tracking functions to ensure that all policy documents are successfully scanned

 and filed into the imaging system. This ensures all policy images are ready

 before starting policy printing process with contract from the insurance

 system. This feature is very important as it ensures all policy documents are

clipped dateÿetc) for later on retrieval. The system then allows signature

retrieval and display.

           In addition to just signature clipping, the system provides an

administration capability to allow signature quality verification. In case of too

large signature that is out of automatic clipping region, the system is capable

of retrieving back that particular application page and clip signature manually.

In case of the d i p contains non-signature information, the system is able to do

manual cleanup. Finallyÿthe system has administration functions to track

signature uploading status and to maintain an error log. Signature is reloaded

in that case.

3.2.7    High Availability System

           The I&W is mission critical. Therefore, it has a high availability of

server components in the whole system.

3.2.8    Backup & Recovery

           The system includes a compreliensive backup strategy and

procedure, so that any single point of failure within any server component can

be recovered in a well-documented procedure.

 3.2.9   Networking

workflow application for underwriting, policy owner services and claims were

realised by applying workflow building tools.

4.1,2   Integrated   Newly Developed      Sub-systems    and   Existing      Host


          A Signature Clipping & Verification System was developed. TMs

system was integrated with I&W to allow automatically signature clipping,

storing signatures and indexing information for later on verifying purpose. In

additionÿfeatures like signature editingÿupdating, re-capturing, and other

and the Xerox printer to provide policy printing

service before it could be binder and distributed to clients.

(A System Configuration Chart is shown on Appendix 4)

42 Process of Implementation

4.2.1     Day-to-day Capturing

Document Preparation

             Documents like new business received daily were put to scanning.

BBB forms were redesigned to include barcode. Barcode was attached to

external documents, e.g. cover sheetÿcorresponding, etc. This allowed

indexing, and other operations to be completed automatically. Consequently,

prior to scanningÿthe operators had completed the following steps:

     Removed all clipsÿstaplesÿpinsÿetc.;

•    Ensured no creases or folds in any of the documents;

•    Ensured each document had the correct orientation;

•       Ensured pages within the document were in the correct order;

•       Printed and affixed barcodes to the front page of each document.

one resided in Kowloon and

the other resided in HK. Each scanner could process 50 pages per minute in

duplex mode.


           The volume of documents fluctuated depending on the time of the

monthÿspecial marketing activities, etc., howeverÿit was estimated that the

daily maximum volume is 20,000 pages, with majority coming from Kowloon.

The system had been sized to ensure that the maximum volume could be

converted within 9am-5pm period without any overflow to the following day.

Image Enhancement, Automatic Indexing with BarcodeÿMark Sense


           Once the scanners had completed a batch of documents, a number of

automatic, hands-off operations took place.

           The image enhancement server took each image and ran a series of

clean-up procedures to produce a more readable image with a smaller file size.

           Where the system recognised a new application form, it copied the

signature image from the appropriate sectionÿand uploaded the copied image

to database. This file was then checked for quality and stored for later on

verification purpose.

Quality Control

           BBB needed to scan and index an enormous volume of documents

within a very short window opportunity. Policy contracts could not be printed

until images were available in the databaseÿtherefore any delayed in

processing the images would necessarily affect the speed at which contract

could be issued.

such as BBB, it is infeasible to view every

                                o o o t
page and check it for quality N t d s a B B B would require a team of 8-10

people. Instead,     companies   invest   i n the    proper   controls    t
                                                                          a      h
                                                                                 te   paper

                  o           h
preparation stage t eliminate t e potential for errors. They then either avoid

quality control entirely or only check a random sample of documents.

Automatic Importing

            Scanned document images were imported into either new or existing

                n h                              h
policy folders o t e imaging system. Thereafter, t e images were available

for on-line retrieval.

4.2.2                         n
          Signature Clipping a d Verification System

             Signature clipped during day-to-day capturing process was collected

by the Signature Clipping System. Signature quality was checked with a

viewing tool. If necessaryÿthe signature would be editedÿe.g. to cleanup


             In case of the signature out of the automatic clipping region as

defined in capturing processÿthe whole page from application form containing

the signature would be retrieved from I&W. Functions would be provided to

user to do manual clipping and cleaningÿetc. All well prepared signatures

were saved together with indexes for uploading to the system. In additionÿ

upload reporting function and audit trial were also available for user to check

uploading status. Backup was kept for any need to reloading signature.

 4.2.3    Policy Data Merging System

            the whole

policy folder was scanned into I&W for policy printing. Policy Data Merging

System was developed to ensure a synchronisation between policy completed

in AS/400 and policy scanned into I&W.

            Daily the mainframe would generated a list of policy information

with underwriting completed. The Policy Data Merging System received and

maintained the whole list. The system was updated for any policy document

captured into the I&W. Through matching and reporting utility, a list of

outstanding policy list that was not scanned into I&W would be issued. Staff

would be informed for scanning and this ensured secured response time to


4.24      Policy Printing System

             The Policy Printing System was developed based on functionality

from PrintSoft of Xerox, which capable of printing a mix of textual data and

TIFF images. Before a batch of policy was printed, the corresponding images

were exported from the imaging system and saved to a particular area on the

network. The textual data was saved to an area on the network.

             The Policy Printing System was capable of merging the TIFF

images with the text data. The merged data was then sent to the Xerox printer.

Detailed policy printing process:

1. TIFF File Preparation. The Xerox printers had the ability to print TIFF

       Group IV compressed imagesÿwhich was the format of image files stored

       in the imaging application. Before the printing software could merge the

       images with the policy contract dataÿthe images needed to be accessible

       from lj network directory. Therefore the first stage i n the Policy Printing

     • A data file containing the Policy Contract data fields was generated

     from the mainframe. This file contained fields such as Life Assured,

     Assured, Policy Numberÿetc. It did not contain the number of image

     pages for each policy. The data file was stored on a common network


2.   The Policy Printing System took the merged data file from Step 2 and

     processed it.

3.   The full set of Policy Contract and Image documents were printed out

     from Xerox

           In addition to standard policy printing functions, the Policy Printing

System was capable of doing policy query, preview, reprint, and other utilities

like results monitoring, reporting, audit trails, backup and recovery, etc.

4 3 Backfile Migration

•      A file containing all policy information and needed extra information was

       dumped from insurance system AS/400.

       For each policy found in the fileÿthe program would create a new entry in

       the new imaging server and pre-allocate indexes for the policy.

•      Extra indexes were firstly migrated into the server.

             When all policies were created and associated extra indexes

migrated into the new system, backfile migration was then performed. This

was done in a per CD-ROM basis and the program would:

• Read databases as contained in the CD-ROM.

• Identify each policyÿassociated documents and number of pages for each


• Identify all images for each policy and convert into format to be uploading

        into new imaging server.

• Migrate each document, image and indexes.

    • Generate auditing reports describing all migration status and remaining files

        in the CD-ROM.


down data entry time and manpower for proposal entry and bring in

considerable improvements to the new business process.

          With the I&W enabled underwriting, it has reduced the time taken

to issue a policy by as much as 50%.

5.3 Take on more business

• • Making copies. • • Passing it back and forth.. • and so


An electronic folder of documents can be accessed in seconds-even to the

correct page by keying in the indices into the imaging system.

           There is no need to continuously increase secretarial manpower.

Executive time is released towards writing more business than looking for

information from paper folder.

5.4 Keep More Data

           Let us say a customer calls up regarding his cheque towards

additional premium in the context of an endorsement. To get all the

information related to this context say — proposal form related correspondence,

an actual photocopy of the chequeÿetc, - in one accessible place for the

customer service department involves various difficulties like maintaining

multiple client foldersÿmaking sure that the folders are updated by different

department (Underwriting, Policy Servicing, Accounts etc)ÿkeeping various

filing cabinetsÿand deploying secretarial manpower.

           Under the imaging systemÿevery document - be it correspondence,

forms, photocopies of chequesÿfaxes, etcÿare all maintained in a shamble

electronic folder - neatly indexed N undated and available simultaneously to

all concerned.

5.5 Liberate Office Space:

                                            p                       0
            A juke box of about 20GB takes u office space o f about 1 sq. ftÿ

 stores on line about 450,000 pages equivalent to about 40,500 policy folders.

 This is a good indication of the potential to save an office space. There is

•   Centralised electronic policy repository enabling an efficient working

    environment for operation user to retrieve, view, print and fax policy

    documents. Chance of lost document miss-filing are minimised.

•   Fast and direct accessing policy file by end-user, reduce extra resource in

    sortingÿretrieving files from drawers.

•   Enhanced productivity and response to client through introduction of

    workflow for business in underwriting, policy owner services and claims.

    In additionÿworking procedures are more manageable as work process

    data can be collected.

•   High degree of automation in capturing policy document through high

    speed scanning, automatic indexing, and filing into the centralised

    electronic repository.

•   High speed policy printing producing contract and policy document at one


•   Signature clipping for new policy enabling later on verification.

the calls had to queue on the line for a long period of time that inevitably

creating customers' discontent and complaints. Since the Mandatory Provident

Fund Scheme will be put into effect in 2000ÿthe management of CCC

expected that the phone inquiries from fund contributors would add burden on

operator's task significantly. In order to improve customer service and cope

with of future business development, the management decided to invest in Call

Centre Technologies as solution.

2) Call Centre Architecture

         Once the decision had been made by the managementÿthe IT

department took up the job to create a Call Centre.

         The Call Centre consisted three main components:

Automatic Call Distribution (ACD)

ACD is a software system installed on the CCCÿs telephone system. It was

responsible for receiving and dispatching incoming calls to operator's

handsets. The main functions of ACD were:

 •     Call reception;

•     Distribution of calls to groups of operators;

_     Supervision of groups of operators;

•     Compilation of statistics.

           The operators used telephone sets fitted with microphone headsets

so that they could input and consult information using their computer

keyboard. Various items of information could be displayed on the handset

when a call was received e.g. the name of the service requestedÿthe length of

time the caller had been waiting and the caller's number etc.

           The supervisor of a team of operators also had a telephone set, a

headset and a workstation, but the range of telephone functions at his/her

disposal was wider than that available to the operator. The information that

could be displayed included the statistics available on each operator from the

workstation; the total number of calls processed in the last half hourÿfor each

telephone set and for the group as a whole; an activity report on the operators.

           When combined with the telephone setÿthe workstation constituted

a more user-friendly way of accessing and manipulating all the statisticsÿand

could be used to manage groups and implement decisions to increase or reduce

the number of operators.

Interactive Voice Response (IVR)

            IVR played lj pre-recorded message to the caller, allowing him/her

t select a serviceÿinput or access information.

          s information

system, a caller could consult restricted information or perform simple

operation on insurance contract. With automatic switchboard, the caller was

offered the possibility of speaking with another personÿanother department,

the switchboard or the employee's voice mail. In addition, the call could select

the company department he/she wished to contact.

Computer Telephony Integration (CTI)

          CTI was a gateway between telephone services and the company's

information systemÿwith call dispatching being controlled by computer


           The main functions of CTI were to associate a client data with the

telephone call in real time after first using IVR and AVD to qualify the client;

to transfer the client data sheet and the telephone conversation simultaneously

from one operator to another and to distribute calls.


2. ... routed the call to the IVR server. The IVR server prompted the caller to

   enter the number of his/her insurance contract. Once the number had been

   entered, it was repeated by the IVR server and was confirmed by the caller.

3. When the call was returned to the ACD, the IVR server informed the CTI

    server that a call concerning Contract Number XXXX was being processed

   the ACD queued the call until a

   suitable operator was available.

4. The ACD sent a message to the CTI server stating that an operator had

   been selected and was available.

5. The CTI server dialogued with the business application that managed the

   contracts and asked it to upload the data from the file corresponding to the

   contract number entered via the operator's PC.

6. The CTI server was informed by the business application that the operator

   had just received the folder. It issued an instruction to the ACD to present

   the call to the operator's telephone set.

7. The operator took the call and personalised the service provided to the

   clientÿby stating the name of the policyholder that appeared on the screen.

4) Benefits of the Call Centre

1. Optimisation of telephone greetingÿreduced lead-time, personalised the

   greeting, put the caller through to the right operator.

2. Ability to process large volumes of callsÿprocessed as many as call as

   possibleÿabsorbed peak call traffic.

3. Managed the human structure of the Call Centre in line with call trafficÿ

   distributed traffic between operators according to their availability and


4. Reduced repetitive tasks so the employees worked smarter and overall

   productivity had improved.

•     Cost Reduction

•     Improved Customer Service / Retention

•     Speed to Market

•     Compliance with Legislation

           These drivers have meant that many organizations have will have to

radically re-engineer their business which invariably has considerable

information technology implications. This coupled with a dynamic market

marketplace has created a strong business need for the benefits of modem

technology; modelingÿworkflow, and the implementation of business process


            A dominant feature of the market is the spate of mergers and take-

overs that have taken place on lj global scale. This is indicative of t e turmoil

                          re                       o
even the larger companies a experiencing i ntrying t come to terms of life i n

the   nineties. This trend      appears   o
                                          t   b
                                              e     escalating and w i l l continue   s

it is a powerful force of

change in its own right. If those senior levels in insurance companies do not

themselves use mainstream IT products such as PCs and electronic mailÿthey

cannot identity with tomorrow's customers. That means that they are putting

their organization at risk.


South Africa                         1                1               _             •

Sweden                               2                -               2             -

Switzerland                          7                3               4             •

Thailand                              1               -                1            -

United Kingdom                       29               5               20            4
United States of America             21               6               14            1

 Total                               229              41             169            19

Source: Office of the Commissioner of Insurance and the Registrar of Occupational
        Retirement Scheme Hong Kong 1994 Annual Report

    Hong Kong                        100      6       85          9
    India                             3       -        3          —

    Isle of Man                       4       4           -

    Italy                             1       wa                  1
     TU T
       tQ                             8                   8
    Luxembourg                        1       -           1       -
    Malaysia                          1       -
    Netherlands                       3       -           3           —

     New Zealand                      2           -       2
     Philippines                       1          -       1           —

     Singapore                        5           •       5

     South Africa                      1                      -


                                                              3       1
                                          7       3
       S izra d

                                                  -           1
                                                      81              4
                                     82           6
       United ingdom

                                                      41              1
                                      2           6
             stt f
        UnitedSo America

                                                      6           2
                                     32       2

 :latisaec sm
   ccfigh C
   nntpe o
   fenO i
   oh n
      Sa t

                       mmH t9n R
                        teen g lo1
                          gc 9 e
                           eon u
                            r KR
                              t A
 Bermuda                             9              6            _
 Canada                              5              4            1
 China                               4              2            1   1
 Denmark                             1              _            1
 Finland                             1              ^}           1
France                               6              1            5
Germany                              4                           3   1
Guernsey                             1              1            -
Hong Kong                           0
                                   10               7           4
                                                                8    9
India                                3              uÛ           3
Isle of Man                          4              4
Italy                                1              -           -    1
Japan                                8              -           8    -
Luxembourg                           1              -           1    -
Malaysia                             1              _           1    -
Netherlands                          2              -           2
New Zealand                          2              -           2    .
 Philippines                         1              -           1    -
 Singapore                           5              -           5    -
 South Africa                                                   N    -
                                     1              1
 Sweden                              1              -            1   -
 Switzerland                         7              3            3   1
 Thailand                            1              -            1   -
 United Kingdom                    28               8           7
                                                                1    3
 United States of America          22               7           4
                                                                1    1

 Total                             223             46            5
                                                                18   9

               f t o msi nr f nu c n t e ita f
                 e               a d e
Source: Office o h C m iso e o Isrne a h Rgsrr o Occupational
            ermn ce e og o g 9
             i                   9
          Rte et Shm Hn K n 16 Annual Rpreot
 Bermuda                               9              7                             2
 Canada                                4              4
 China                                 4              2               1             1
 Denmark                               1                              1
 Finland                               1                              1
 France                                6               1              5
 Germany                               4               -
                                                                      3             1
 Guernsey                              1              1               [x            wa
Hong Kong                             0
                                     11               8              4
                                                                     8              9
India                                  3              RÕ              3             .
Isle of Man                           4               4
Italy                                  1              -                             1
Jpda l                                 Q
                                       0                               o
Luxembourg                             1                               1
Malaysia                               1               -               1            -
Netherlands                            1               -               1
New Zealand                           2                -              2             –ê
Philippines                            1               -               1            -
Singapore                             4                -              4             •

South Africa                           1              1                I
Sweden                                 1              ‹p               1
Switzerland                           6               3               2             1
Thailand                               1               -               1            •

 United Kingdom                      25               7               15            3
 United States of America            21               7               13            1

 Total                               215             45              151            19

Source: Office of the Commissioner of Insurance and the Registrar of Occupational
        Retirement Scheme Hong Kong 1997 Annual Report
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              «111   3
financial planning
Improving field force efficiency
Target marketing
Improving sales management
Improving field communications
Supporting additional distribution channels

How would you rate the performance of IT in respect of the following areas?
(Technology far exceeded and exceeded <E> or met expectation <Met> vs. where
technology had failed <F> or has not been used <NU>)
                                                    E     Met F       NU
Improving field force efficiency
Making claim settlements and beneficiary payment
Establishing better client communications and
Selling new products to existing customers
Improving field underwriting
Retaining the field force
Identifying customer needs and new product demand

Are you frequently using the following technologies today and your expectation
of using them in the future?
                                                 Now                  Future
Fax machines
Stand-alone PCs and workstations
Mainframe computer linked to PCs
Networked PCs
Electronic mail systems
Minicomputer-based networks
Notebookÿlaptop or portable computer
Cable/satellite communications
Voice mail telephone systems
Online or bulletin board services
Scanning or imaging devices
Expert systems tools
Electronic commerce
 Multimedia presentationÿincluding interactive
 laser disk and CD-ROM
 Interactive television
 Internet and Intranets
IT spending as a percentage to the total turnover
(gross premium) in each of thefollowing years?


Will        pai
comparison with 1997?

Do you have IT director on the main board/senior management level?

The annual turnover of your company in 1997 is HK$
FT Financial

Harnessing Information PowerÿHong
Kong University Press 1993

Information System Concepts for
Management, Fifth Editionÿ
McGraw N H i l l International

Pocket Information Technology, The
Economist Book

Competitive Strategy:Techniques for
Analyzing Industries and
CompetitorsÿFree Press 1980

Management Strategies for
Information Technology, Prenticae

Information Technology: The
Management ChallengeÿAddison -
Welsy Publishers Ltd. 1994

Insurance Annual Report 1993 -

Management Information Systems,
Seventh EditionÿDP Publications

Insurance Companies Ordinance
Chapter 41

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