Enterprise architecture can advance ILS fund strategy: Roder, Synpulse

For insurance-linked securities (ILS) fund managers, embedding enterprise architecture can ensure innovation and technology are a focal point that serve to advance the business strategy, according to Synpulse Management Consulting.

“ILS managers are technology companies that happen to work at the intersection of (re)insurance and capital markets. Such a statement is increasingly adopted by companies seeing innovation as a key driver of their comparative advantage,” explained Patrick Roder, Associate Partner and Global Head of ILS, Synpulse, in an interview with Artemis.

Whether this involves establishing new business products or models, he continued, both innovation and technology must be central to strategy and managed as a fundamental capability.

According to Roder, in order for ILS managers to gain such a competitive edge, they need a “front-footed, strategically aligned innovation and technology organization.”

In reality, however, many fund managers in the space lack such an entity and as such, experience significant challenges in their IT architecture, which Roder says can detract from the desired strategy instead of reinforcing or even shaping it.

“What is needed is the capability to manage the company’s IT assets and drive the discovery and adoption of innovative solutions that advance the business strategy.

“Enterprise architecture can play a central role in orchestrating this. We approach enterprise architecture as both a function and a framework to continuously assess and orchestrate a company’s capabilities, business processes, systems, and information assets to advance the business strategy while delivering necessary adaptability, robustness, and efficiency,” he said.

The deployment of enterprise architecture encourages ILS managers to think like a city council and, at Synpulse, they see numerous ILS managers living what it calls the “Urban Sprawl” approach.

“In this approach citizens are given latitude to independently build whatever structures and infrastructure they like wherever and however they want. The resulting city lacks a systematic, cohesive layout and could be prone to challenges in the future. This often manifests due to the cross-industry nature of the business, overreliance on legacy systems stemming from underinvestment and lack of innovation, and/or as an unintentional by-product of change aversion,” explained Roder.

“For some ILS managers, this happens because strategic decisions (e.g. transition from rented to self-owned reinsurer) are not matched in operational execution—or because there is an outright lack of planning from the get-go—creating impediments to scale the business to new markets and customers, to deliver new products, and other areas,” he added.

A potential by-product of this approach is that business units can be siloed along functional lines, Roder told Artemis.

“Cross-functional interactions to conduct business-as-usual processes occur via email, via printed sign-off etc. This is reinforced by industry deficiencies in the availability of dedicated ILS IT systems. This means that a mosaic of systems and applications is often required, but in practice ILS managers often over-rely on tactical solutions that become strategic by default (e.g. user-created Excel tools),” he said.

Taking this route often results in data stored in a federated, siloed manner, which Roder warns introduces a level of operational risk, serves to impact reporting capabilities and ultimately decision making.

What’s more, it makes the entire system landscape that much less scalable while also raising maintenance costs, commented Roder.

“A more methodical, alternative approach is to build and maintain the city in a systematized way with interconnecting systems and structures. We call this the “Moon Wheel” approach.

“The Moon Wheel approach requires an overarching plan and design along with coordinated effort among teams in the design, build, and maintain phases. If sound architectural principles are applied, the city will be both structurally sound and have the flexibility to accommodate future changes that will inevitably be required,” said Roder.

He stressed that adopting the Moon Wheel approach and ensuring innovation and technology have a seat at the strategy table is an explicit choice available to ILS managers.

“Embedding enterprise architecture within the company enables organizations to identify pain points in their current setup, define the target architecture that supports or further shapes company strategy, and determine the roadmap for achieving the vision,” he concluded.