In contrast to insurers in more developed markets, Chinese insurers spend most of their IT budgets on hardware and software rather than staff and services. But this reflects the comparatively cheap price of labor, rather than a "buy not build" strategy. In fact, with most software coming from expensive foreign markets and staff costs comparatively low, most Chinese insurers have a strong predilection towards "build." Celent expects this to shift slightly by 2009, as infrastructure becomes more established, and the need for specialized knowledge becomes greater in face of stronger external competition.

For foreign entrants, the biggest operational challenges are dealing with an unfamiliar - and insufficiently transparent - regulatory environment. In addition, they must negotiate local partnerships and design and manage a local sales force.

Then they must adapt their IT and operational practices to meet local needs, including not just double-byte characters and local currency, but local business workflows, and regulatory and reporting requirements. Celent recommends that foreign entrants should leverage local suppliers and staff for knowledge and cost advantages whenever possible, while working with their existing global providers for general expertise and the familiarity with their global enterprises.

Chinese insurers old and new are both starting from an early stage when it comes to building a mature IT infrastructure. Given this position, they are generally free from the "legacy problem" that bedevils the US and European insurance industries. Chinese insurers must think strategically about the task ahead in order to minimize the risks of creating their own legacy problems in the future.

Celent believes that insurers in China should focus on the four A's of insurance IT as they build their solid foundations for the future. Adhering to these key principles - Alignment, Agility, Accessibility, and Affordability - should help them compete effectively in what is becoming a more and more competitive market.

 Alignment:
Insurers in China must build the organizational structures to ensure a strong partnership between business/IT from the beginning. IT must have a "seat at the table" and be part of the growth planning process.

 Agility:
Insurers in China should design their infrastructures for change. Rather than solving today's problem perfectly, they should focus on solutions that solve today's problems well enough while being flexible enough to adapt to tomorrow's unknown problems.

 Accessibility:
Insurers in China have the advantage of building up their infrastructures in a time when the important of openness in architecture and user access is well understood. They must ensure that they do not build silos, even though in many cases siloed systems can be built faster and cheaper.

 Affordability:
Insurers in China must consider the costs of long-term maintenance and upgrades to their systems, and not just pursue today's low-cost option. As the market matures and competition increases even further, having a lower cost basis will give competitors more flexibility in their business strategies.

China is an exciting and growing market for local firms, foreign entrants, and solution providers. But competitors must keep one eye on the future as they rush in to stake their claims.