North American Life Insurers Looking to East Asia

CSC Jump-Starts Expansion

Shrinking profit margins. Saturated markets. Faced with limited local opportunities, North American and European life insurers are looking to stake out new territory. Many are finding fertile ground in East Asia.

Financial services deregulation triggered by the Asian financial crises of the 1990s and the emerging Chinese market have opened up an Eastern frontier. Foreign insurance companies can now set up shop in once-forbidden markets. What's more, the perceived quality and stability of North American-based financial services products give them an edge over local Asian providers.

Japan Welcomes New Insurance Options

Perhaps no market in Asia is more ripe for offshore insurance investment than the sophisticated economy of Japan. Variable life and annuity offerings modeled after U.S. products are gaining in popularity there. "Japan is a savings-based culture, so the average Japanese individual has a much higher ratio of savings to earnings than their U.S. counterpart," said Chuck Johnston, president and director, Insurance Information Strategies at Meta Group. "It's a prime market for good investment vehicles with reasonable returns-especially with the Japanese real estate market out of reach for so many people."

Another trend that bodes well for North American-owned insurance companies: the flight to quality. Falling equity markets, outdated high-interest rate guarantees, and the general instability of Japanese financial institutions have left many banks and insurers approaching insolvency. Risk-averse policy owners are moving their money to the local offices of foreign financial institutions.

With those opportunities come many challenges -technical, cultural and business-related, advised CSC's Jon Taute. As a customer executive for CSC, Taute helps North American-based financial services companies navigate this new landscape.

"The opportunity is there-but insurers just can't go in blind," Taute said. "Expansion into East Asia requires significant technology investments as well as cultural sensitivity. Choosing a strong technology partner with a proven Asian track record is key."

China Opens Its Doors

Despite the challenges, the scale of the East Asian markets poses seemingly limitless potential. In China, for example, insurance currently represents less than 2 percent of the Gross Domestic Product-compared to 8 percent in the U.S. and 11 percent in savings-oriented Japan. That leaves a huge market for Western carriers to serve. It's no wonder, Taute added, that Chinese insurers reported revenue and profit growth in excess of 30 percent last year.

"If an insurer could get even 1 percent of that market," he said, "They'd have an operation as big as the biggest insurance company in the U.S. China is the richest insurance and asset management market in the world."

New opportunities in China have been bolstered by the country's recent reentry into the World Trade Organization (WTO) and Chinese government deregulation. The day after China's accession to the WTO, the Chinese regulatory authorities granted three licenses for insurance companies to operate or expand in China. Five cities, including Shanghai, have been opened to foreign insurers so far.

Another factor driving China's insurance industry is the nation's rapidly growing middle class-200 million and counting- fueled by China's rapidly expanding economy. Last year alone, China's Gross Domestic Product (GDP) grew by roughly 7.6 percent, while indicators such as home sales climbed 18.2 percent.

And over the past decade, the number of white collar, administrative, professional and business workers or owners jumped from 8 percent to nearly 30 percent.

Gateways to the East: Hong Kong and Taiwan

In contrast to China's emerging market, the Hong Kong insurance market is more mature and competitive. A deregulated insurance industry, established free market conditions, and proximity and ties to mainland China all make Hong Kong a logical entry point into East Asia for North American insurers.

Another gateway to the East, Taiwan, has faced financial sector instability similar to that of Japan. As in Japan, risk-averse Taiwanese investors are interested in placing money with stable North American companies. Taiwan entered the WTO immediately after China, and the Taiwan Financial Company Holding Act is streamlining the financial products approval process. Also, despite persistent political tensions, Taiwan has increased its investment in China.

West Meets East: The Challenges

For every new opportunity in Japan, China, Hong Kong, Taiwan and other East Asian markets, insurers also must be prepared to meet new challenges, according to Meta Group's Johnston.

"The market dynamics and economics in East Asia tend to be very different from what North American insurers are accustomed to, particularly in emerging markets," Johnston said. "Traditional business and technological parameters that work in North America and Europe won't work there.

"Familiar vendors, outsourcers, integrators and even basic services are often unavailable," he added. "There's a mix of what the market is ready to accept. In Korea and Vietnam, for example, the wireless infrastructure is much better than the local land-line infrastructure."

Other information technology challenges include high telecommunications costs, low levels of recent IT infrastructure investment, and the desire to leverage existing strategic North American financial services applications.

Selling insurance in East Asia requires attunement with the local culture. In addition to basic language and communication issues, insurers are faced with converting their systems and software applications to complex Asian character sets. Many countries require the foreign insurer to partner with a local firm. Although setting up a joint venture takes some management control out of the hands of the insurer, it can help bridge the cultural divide.

Differing business and contractual practices also present challenges. For instance, insurers can't expect the same types of Service Level Agreements (SLAs) and other contracts that are commonly used in North America.

Moving in quickly with the right technology solutions and cultural understanding can pay off for Western insurers, said CSC's Taute. Carriers can minimize their risks by partnering with CSC, which has global capabilities, reliable telecommunications, a local presence and Asian character- enabled products.

"CSC has the bases covered," Taute said. "We know the technology, we know the markets, we know how to work with the cultures-and we're poised to help North American insurers pursue East Asian opportunities."

Keys to Success in East Asia

Active in the region since 1981, CSC is East Asia's leading banking and insurance software provider. CSC Asia has more than 3,300 employees, 170 financial services clients and several data centers in the region. In 1999, CSC acquired a controlling interest in CSA Group, the first IT services company listed on the Stock Exchange of Singapore. CSC's network of IT capabilities in East Asia include:

• Existing applications. CSC's VANTAGE-ONE, a leading annuity administration system in the U.S., is already in production in Japan and can support. multiple Asian character sets. CSC's intellectual property also includes FUTUREfirst, a comprehensive administration system for life, critical illness, accident and health; Automated Work Distributor (AWD); and 3r call center solutions.
• Local applications and staff. CSC offers the Asian-language Life-Asia and Life-J applications, both specifically designed for East Asian markets. Local CSC consultants provide management consulting, technical support, financial services business expertise, e-commerce and other strategic needs.
• Managed application hosting. Agility, flexibility and speed are performance hallmarks of the eHub application infrastructure hosting solution, just one of CSC's multiple managed services. Supported by data centers worldwide, eHUB combines best-in-class technology with industry- leading integration and operations expertise to provide secure, end-to-end application hosting.
• Cost-effective telecommunications. One of the biggest challenges faced by insurers is the expense of Asian telecommunications. CSC has developed a usage-based, reliable Integrated Global Network (IGN). By leveraging network capacity and IP- and VPN-based connectivity throughout the world, IGN can lower client costs.
• Infrastructure outsourcing. CSC's full range of IT infrastructure support capabilities bring cost-effective global standards to Asian markets.
• Facilities. CSC offices, staff and data centers throughout the Asia-Pacific region are closely aligned with the growing East Asian markets.
• Locally focused contracts. CSC recognizes that contracts must acknowledge local realities while remaining acceptable to Western insurers. With support from the local country, CSC crafts contracts that meet local needs while remaining true to North American standards.
. CSC's VANTAGE-ONE, a leading annuity administration system in the U.S., is already in production in Japan and can support. multiple Asian character sets. CSC's intellectual property also includes FUTUREfirst, a comprehensive administration system for life, critical illness, accident and health; Automated Work Distributor (AWD); and 3r call center solutions. CSC offers the Asian-language Life-Asia and Life-J applications, both specifically designed for East Asian markets. Local CSC consultants provide management consulting, technical support, financial services business expertise, e-commerce and other strategic needs. Agility, flexibility and speed are performance hallmarks of the eHub application infrastructure hosting solution, just one of CSC's multiple managed services. Supported by data centers worldwide, eHUB combines best-in-class technology with industry- leading integration and operations expertise to provide secure, end-to-end application hosting. One of the biggest challenges faced by insurers is the expense of Asian telecommunications. CSC has developed a usage-based, reliable Integrated Global Network (IGN). By leveraging network capacity and IP- and VPN-based connectivity throughout the world, IGN can lower client costs. CSC's full range of IT infrastructure support capabilities bring cost-effective global standards to Asian markets. CSC offices, staff and data centers throughout the Asia-Pacific region are closely aligned with the growing East Asian markets. . CSC recognizes that contracts must acknowledge local realities while remaining acceptable to Western insurers. With support from the local country, CSC crafts contracts that meet local needs while remaining true to North American standards.

"For CSC, globalization means standard business practices and processes used uniformly wherever we do business," said Jim Cook, President, CSC Financial Services Group. "Our strategy is to blend global and local expertise. Global horizontal lines of service and global vertical business units develop and deploy the processes. The geographies provide the local expertise."

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