THE 1990S

New Markets, New Competition

As the PC became the new normal, deregulation paved the way for a global economy. Insurance benefited from new prospects and products, but also faced new challenges

By the time the 1990s rolled in, the office space had been transformed. The ubiquitous typewriter had been replaced with desktop computers, laptops, and printers that were connected together through ethernet. By the end of the decade, technologies like open access internet and email communications completed the transition to a new kind of work. As a result, software makers became increasingly dominant. Since universal compatibility was essential, a handful of companies like Microsoft, Oracle, SAP and Adobe gained overwhelming market share in their respective sectors.

For the life insurance industry, another type of revolution was under way. The 1980s saw the development of insurance combining savings or retirement with death benefits. In the new decade this was expanded to include more flexible, so called unit-linked policies that were coupled with investment fonds.

The German-speaking countries went a different direction. They offered Kapitallebensversicherungen or capital-life policies with a guaranteed interest rate on payments. By the 1990s, this rate had reached its high point of 4%, a number inconceivable today.

At the same time, as part of the global trend toward easier international trade, there was a big push for deregulation. The creation of the WTO (World Trade Organisation) in 1992 was followed shortly by the EU insurance deregulation of 1994. This meant that now insurance companies were free to compete internationally like never before. A flurry of new insurance products were rapidly developed and marketed.

The life insurance companies thus found themselves in a difficult position. They were still struggling to maintain their older mainframe IT structures while introducing new types of policies at an unprecedented speed. However, business was booming. With management attention elsewhere, system upgrades were often postponed. What resulted was an increasingly challenging hybrid of new and old technologies.

Concurrently FJA was rapidly advancing its own technologies, as it grew its customer base of mid-sized and large insurance companies. By the middle of the decade, they had developed a new version of their standard life insurance software, now called Life Factory. This implemented GUIs (graphic user interfaces) for the first time and took the ambitious step to incorporate insurance administration and other business processes. But the most remarkable achievement was mathematical. Life Factory was the first software to adapt the semi-Markov mathematical model to insurance calculations. For those life insurance companies willing and able to make the leap, there were enormous wins on efficiency, cost saving and speed of product development.

As both academic and business manager, Peter Gessner had a major impact in the development of life insurance in Germany starting in 1980.

As a testament to this success, FJA now found itself facing a formidable competitor with the establishment of Peter Gessner & Partner GmbH, later known as COR. Peter Gessner was already something of a legend. He was a distinguished professor of mathematics, an economist and manager of leading banks and insurance companies. For example, he led the development of Deutsche Bank Life Insurance to a billion Deutschmark business in 4 years.

Gessner recognised early on that it made little sense for each life insurance company to develop and maintain their own software. COR was conceived with the goal to create a standard software for the whole industry. A competition between two industry pioneers had thus begun.

One particular issue was especially of concern to insurance companies as the new millennium approached. Because of early memory limitations, it became a habit in computer programming to use the final two digits to represent the four-digit year. As a result, when the clocks turned to 2000, it would look identical to 1900. Crashed systems, loss of data and all kinds of apocalyptic predictions were thus anticipated. Commonly called the millennium bug or Y2K bug, this was not specific to insurance, but because of their legacy systems and massive databases, they were especially vulnerable. Both FJA and COR were called in to help the companies correct this and it often became the entry point for updating their core IT systems.

Next: The 2000s and Economic Uncertainty

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