UK: $20 Billion Potential Savings For Insurance Companies From Online Exchanges

Chris Gentle, Head of Research at KPMG Consulting and author of the white paper commented: "Transactions on business to business online exchanges are forecast to rise from $145 billion in 1999 to over $4.5 trillion by 2004 . Meanwhile, the amount of claims settled by the EMEA insurance industry in 2000 is predicted to exceed $340 billion. Online exchanges could be used to process a large proportion of these claims. By automating the claims process in this way, it is possible to reduce overall transaction and purchasing costs, increase the speed of claims processing, expand the choice for buyers - by linking suppliers across the world - and provide access to new customers for sellers."

A large proportion of the costs facing insurance companies are related to processing claims and associated back-office functions. Online exchanges cut out these tiresome, repetitive procedures by completely automating systems, right through from the back office function to the end-customers' claims form.

Louis Jordan, Partner at KPMG Consulting, added: "The predicted level of growth in the non-life insurance area is, in part, due to the pressures the insurance industry is currently facing - to reduce costs, optimise back-office and gain market share. These pressures are compelling insurance companies to evaluate which parts of the value chain deliver most shareholder value. And it is this which is driving insurers to focus more than ever on the core competencies in the three key areas of non-life insurance - investment management, distribution and underwriting/processing - where exchanges are at their most effective.

Other key points of the report include:

• In the New Economy, companies need to collaborate and compete with rivals - simultaneously. Critical to business success is the ability to develop and manage a set of bilateral relationships with TTPs (trusted-third parties).

• Paper is gone for good - exchanges provide a virtual trading platform for big and small suppliers. They also create a more efficient marketplace linking the digital and physical supply-chains. In turn, the application of straight through processing systems will link trades to in-house finance and accounting functions. In insurance this offers the opportunity to eliminate paper from the millions of claims that are processed each year.

Chris Gentle concluded: "Currently, the insurance sector is a fragmented industry with complex and bureaucratic processes. In the future, these will no longer be present - at least, not if insurers are to survive. The establishment of trading exchanges in insurance has the potential to take the digitisation of the supply chain to the next level - and offers the insurer the possibility of leaping ahead of the field and generating millions of pounds of cost savings to add to the bottom line."