Category Supply Chain Management

Having spent years working with insurers, the world of banking did not seem like it would be much different. After all, there is a long history of shared ownerships.

Each are heavily governed financial institutions with a strong aversion to taking any and all unnecessary risks. They both make and receive payments, hold highly sensitive information and have a wealth of compliance officers at every turn.

However, scratch the surface just a little bit and the differences are soon quite clear. but they have different business models and therefore different technology needs.

Banks

Banks provide a wide range of financial services, including deposits, loans, payments, and investments. They need to have robust systems in place to manage these services, which include:

• Core banking systems: These systems manage customer accounts, transactions, and balances.
• Loan origination systems: These systems help banks to process and approve loan applications.
• Payments systems: These systems process electronic payments, such as wire transfers and credit card transactions.
• Investment management systems: These systems help banks to manage their own investment portfolios and provide investment services to their customers.

Banks also need to have systems in place to manage risk, comply with regulations, and prevent fraud.

Insurance companies

Insurance companies sell policies that protect individuals and businesses from financial losses due to unexpected events. They need to have systems in place to underwrite risks, process claims, and manage their policy portfolios. Some of the key technology systems used by insurance companies include:

• Policy administration systems: These systems manage customer policies, including policy terms, premiums, and coverage.
• Claims processing systems: These systems automate the claims process, from initial notification to settlement.
• Underwriting systems: These systems help insurance companies to assess risk and set premiums.
• Data analytics systems: These systems are used to analyze customer data and identify patterns and trends. This information can be used to develop new products, improve pricing, and reduce fraud.

Insurance companies also need to have systems in place to manage risk, comply with regulations, and prevent fraud.

Different technology approaches

While banks and insurance companies share some common technology needs, there are also some key differences. For example, banks need to have systems in place to process high volumes of transactions in real time. Insurance companies, on the other hand, typically have fewer transactions, but they need to be able to process complex claims quickly and accurately.

Another key difference is the use of data analytics. Banks have traditionally been more data-driven than insurance companies, but insurers are increasingly investing in data analytics to improve their underwriting, claims, and marketing operations.

Examples of technology approaches

Banks:

• Mobile banking apps: Banks are using mobile banking apps to allow customers to access their accounts and make transactions on the go.
• Artificial intelligence (AI): Banks are using AI to improve fraud detection, automate customer service tasks, and develop personalized financial advice.
• Blockchain: Banks are exploring the use of blockchain technology to improve the efficiency and security of payments and other transactions.

• Insurance companies:
  • Insurtech: Insurance companies are partnering with insurtech startups to develop new products and services and improve their operations.
  • Telematics: Insurance companies are using telematics data from vehicles to better assess risk and offer personalized pricing.
  • Wearable devices: Insurance companies are using data from wearable devices to develop new health insurance products and services.

Overall, banks and insurance companies are both using technology to improve their operations and customer experiences. However, there are some key differences in their technology needs due to their different business models.

Risk Appetite

It is the approach to risk where the biggest differences can be seen. Insurers, because of a limited transactional model, can afford to be more risk adverse. They don’t engage with the customer on a daily basis unless there is a claim.

Banks on the other hand, do engage on a daily basis. They do not like the increased risk of cloud computing and insure tech software, but knowing that their customer base are going to use it, each supplier is risk accepted.

I been fortunate to have worked with many different insurers, financial services companies and suppliers over the years. This has given me a good overview of different ways of managing a supply chain and how to get the best out of your suppliers.

Trust

This is not as straightforward as it might be. Obviously there needs to be trust between the vendor and the supplier but this cannot be and should not be unconditional. The best methods I have seen are audit regimes which validate the good and inconvenience the bad performers. Like any sports coach will tell you, if you let a poor performer “get away with it”, it will soon have an adverse effect on the rest.

We implemented an audit regime whereby the best performer had their next audit date set for 2 years time and the worse performer 5 days time which seemed to have the desired impact.

Comparing performance

Many years ago my team and I were waiting in a supermarkets head office for a meeting. It goes without saying that we were being kept waiting. In the foyer were two white boards on either side of the main passage. One was labelled “Super Hero Suppliers” and had a list of 10 companies listed beneath, the other was labelled “Super Villain Suppliers” with another set of 10 companies listed. With thousands of visitors each week I can only imagine that any CEO for the Super Villain Suppliers would have tasked his teams to get them off that list.

Rewarding Performance

At a large commercial insurer we had a dual panel of loss adjusters. At the start of the contract, each firm received 50% of the available instructions. After 6 months, through a combination of file audit and data evidence, we would then allocate the better performer 60% of instructions and the other 40%. After a further 6 months, the process started again so that the 40% firm had a chance of getting the lions share and the 60% firm had a chance of retaining it.

By being crystal clear with the targets and desired outcomes, we were able to manage the panel to incredibly high standards. Oh and we also announced the results to both firms, in the same room at the same time, with the winner having to buy lunch for all.

Encouraging Innovation

The best example of this I have seen is with a major UK general insurer who had a very large advertising budget. The premise was actually very simple – come to us with a great idea which we can market and it might appear on our next advertising campaign.

This was not an empty promise, and working with their service providers there were campaigns which both featured, and relied upon, the suppliers idea and delivery.

Collaboration

If you type “Supplier Collaboration” into Bard or Chat GPT you’ll get a big self written article about the Toyota academy, or Amazon’s just in time process, or even Apple’s sourcing of components. I’ve never witnessed any of this first hand, but the examples I’ve seen all follow the same principles.

One insurer I worked for had a quarterly advisory group whereby the 12 best performing repairers were invited to a strategic thinking day to help us plan our future modelling. As part of this “select club” the repairers were also able to gain funding should it be warranted.

At another we had an arrangement whereby the suppliers claims handlers were “loaned” to us for a number of weeks to assist with workloads and also to gain a better insight into how we worked. This soon morphed into a transplant arrangement whereby their staff would sit within the claims teams on a permanent basis.

Conversely we also had arrangements with key strategic suppliers that our operational and management staff would be permanently based on their site. This was not to provide micro management but rather to evolve and improve the processes on a day by day basis.

Celebration

Most insurers now have supplier days, but there are some who also have supplier awards ceremonies. These are always very well received by the supply chain providers, especially those who win and the insurer that hosts a treasure hunt as part of the days event is spoken of highly.

You can dress up the procurement and supply chain function all you like but it will always get boiled down to one single key metric – what have you saved.

Over the years we have always been mindful of this and sought to deliver double digit ROI on a number of commodities including;

• Legal Fees
• Professional Services
• Paint
• Insurance
• Flooring
• Electrical Goods (IT, Mobile phones, Brown and White)
• Salvage
• Automotive Glass
• Property Glass
• Property Repairs
• Vehicle Repairs

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