News, insights, innovations.

Life Underwriting

Follow the Rules

A study of life insurance underwriting tools shows some carriersarent utilizing electronic data to a competitive advantage.

The popular belief that selling life insurance electronically isnot an effective sales channel ignores a powerful tool that canmake the collection of data more efficient for life insurers,according to a recent report released by Celent Communications. TheEvolution of Rule-Based Life Underwriting Systems was written byCelent analyst Craig Weber. He says rule-based decisioning isvaluable for insurers because the underwriting process is based onrules and regulations.

There are two important functions a carrier needs to perform inthe short term to make its rules engine more effective, hebelieves. The first is the electronic application. Weber describesit as missing in action from most carriers. Thats an importantprecursor to having any kind of expert system, he says. You need toget the data you are evaluating in electronic form. Systems cantdeal very well with underwriting requirements found on paper.

A second area many life carriers dont yet have in place is whatWeber calls requirements management. Thats a system to take thebasic information about the case and figure out what medicalrequirements you are going to need to order to evaluate the case,says Weber. Typically, attending physician statements or EKGs mightbe ordered for policies over a certain face amount. That process ispretty straightforward. Most carriers have a table that says, Atthis age and this face amount, what are the requirements? We thinkit is a simple and powerful thing to have a system in place to dothatfigure out what requirements are necessary, go out and make theorders to the paramedical vendors, and do it in an automated,hands-off way.

Web-based data entry has become a cherished part of mostbusinesses today, relegating the old client-server application tothe museum along with paper and pens. There is more out-of-the-boxfunctionality for tools to do these things today than there everwas before, says Weber.

There may never be a point when all life insurance policies canbe completely underwritten in an electronic environment. Weberconcedes it is hard to translate a treadmill EKG to an electronicinsurance form. Still, he believes insurers have been misled intobelieving they dont need an electronic data stream because there isgoing to be some point in the process where there are paper-basedrequirements. That misses the fact that some percentage of everycarriers business is lower face amount and younger ages where youdont need the paper-intensive requirements such as attendingphysician statements, he says. Theres an opportunity to automate achunk of your business, maybe one-third of it. He believes manycarriers have not invested in electronic applications because theywere focused on higher face value policies.

Looking to the next generation, though, Weber believes lifecarriers should electronically collect as much data on theirpolicyholders as they can get. Even if you write business thatrequires data that is not in the right form, there are ways aroundthat, says Weber.

The other key aspect for a next-generation system is alternativedata collection and underwriting methods. Carriers might see theend of the days an agent sits across the kitchen table from aclient. Call centers will review an application over the telephoneand get a voice signature.

Once youve made that shift to an alternative data collectionmethod, says Weber, it opens the possibility of driving decisionmaking all the way out to the point of sale.

Wireless LAN

Market to Grow Quickly

The wireless local area network (LAN) market could grow by asmuch as 30 percent annually, according to META Group, whichpresented its findings in a recent METAspectrum evaluation. TheStamford, Conn., research and consulting group evaluated vendorsthat focus on providing wireless solutions based on the IEEE 802.11standard, according to Chris Kozup, senior research analyst inMETAs global networking strategies service.

Kozup says wireless LAN products must include advanced featuresfor security, management, and reliability. He also indicates theymust demonstrate a clear commitment to advanced features.

Among his findings in the report, Kozup believes:

• Vendor success depends on a mixture of performance and marketpresence.
• The market has undergone a transition from emerging status tofull growth with technology quickly becoming commoditized.
• Selecting a strategic partner for wireless LAN initiatives iscritical.
• Best practices organizations are developing wireless LANpolicies proactively.
• By 2004, market presence is expected to increase in importancerelative to performance as the technology matures and users placegreater value on market penetration and vendor viability.

Security

Consumers Worried About Online Information

For e-commerce to succeed in the insurance industry, data willhave to be sent over the Internet, but insurance carriers mustfirst alleviate consumers fears on the fate of that information ifthey expect the online channel to grow, according to InsuringConsumer Confidence Online, a recent study conducted by IVANs.

Opinion Research Corporation Inter-national conducted thetelephone survey for IVANS, interviewing 1,024 men and 1,035 womenages 18 and older who live in private households in the UnitedStates. The study revealed the smallest violation of consumer trustcould destroy a carriers credibility. Some 66 percent ofrespondents are concerned about the security of their personalproperty information sent over the Internet from a claims adjusterto an insurance carrier. An even larger number, 79 percent of thosesurveyed, are troubled by having their personal medical historysent over the Internet.

Clare DeNicola, senior vice president of network services forIVANS, says both health and property/casualty insurers have a realopportunity to educate their policyholders on the security measuresthey have initiated. The survey results show many consumers are notyet aware of the advanced networking technologies available todaythat can protect their data on the Internet, says DeNicola.

Whos Using What

Baltimore Life Insurance Co. has agreed to use the IllustractorLife Insurance and Annuity Illustration system from Deerfield,Ill., actuarial consulting firm FMSI.

HDFC Chubb General Insurance Co. has ordered X-GEN generalinsurance solution from Apex Technologies India, which is based inBangalore and is a global insurance solutions provider.

West Bend Mutual Insurance Co., located in West Bend, Wis., andMiddlesex Mutual Insurance Co., headquartered in Middletown, Conn.,have signed contracts with Prelude Software Inc. for use ofPreludes PayPilot in their check printing and reconciliationprocesses.

ACA Assurance, a fraternal benefit society with over 25different insurance products, has licensed Genelco LifeWeb andGenelco Life+ from Genelco Software Solutions, the St. Louis-baseddivision of Liberty Insurance Services Corp.

RLI Corp., based in Peoria, Ill., has implemented the ExamplePlatform Product Suite from Duck Creek Technologies to provideWeb-enabled front-end rating, underwriting, and policy managementservices for the RLI line of property/ casualty insurance.

Health benefits provider Humana Inc. has signed a five-yearcontract with Danka Business Systems to provide Danka @ the Desktopimaging equipment to Humana locations across the U.S.

HB Group Insurance Management, Ltd., has gone live with anenhanced version of ClaimsPath, the online claims communicationsystem from Castek. The software developer also has signed a letterof intent with Kingsway Financial Services for use of theClaimsPath product.

Reliance Standard Life Insurance has gone live with FronTier, agroup administration application from Sherwood International.

CGU Life Insurance Company of America has licensed IRIS, thecustomized illustration system from COSS Development Group ofMilwaukee.

Ohio National Financial Services has licensed nbAccelerator fromComputer Sciences Corporation (CSC) for its business processmanagement and risk assessment capabilities.

Scottsdale Insurance Company has awarded a contract toInsuritySM Inc. for the use of Insuritys Commercial IntellisysInternet solution.

Woodmen of the World/Assured Life Association has launched a newWeb portal that is fully integrated with LifePRO, the insuranceadministration system offered by Professional Data ManagementAgain, Indianapolis.

Conference Report

Gates Lays Out Technology Challenges

While times may be tough for the technology sector, the U.S.economy in general, and the insurance industry in particular,technology will provide answers to help weather the storm,according to Bill Gates, chairman and chief software architect forMicrosoft in Redmond, Wash. Gates delivered the keynote address ofthe Comdex Fall 2002 technology conference in November. He believesall the scenarios for automation of business and home life that arejust beginning will be commonplace by the end of what he termed thedigital decade. Advances in chips, connectivity, and computingdevices will enable this, he noted.

All of this is likely to impact insurers not only in providingcoverage for homes and businesses, but as users of technologythemselves. He feels many functions that are currently donemanually will be done in digital form by 2010. Theres a lot of hardwork to be done to build a foundation for that, he said, notingmany technology initiatives will require literally tens of billionsof dollars to be spent. This is the task were all engaged in.

Personal computing is not just sitting in front of that desktopPC, Gates continued. Thats very important, but just a piece of whatwell do. The magic of the chip and [advances in] software are nowspreading to all kinds of devices, connecting in different ways.All of these will come together. Gates pointed out the idea ofpersonal computing is now far broader than ever before. Systems canconnect automatically, yielding greater productivity, he said.

Last year, there were a lot of highs and a lot of lows. It was atumultuous year, a tough year, a year to test the people withlong-term commitment, a year to test which innovations really meetthe demanding requirements customers have in this kind ofenvironment, said Gates. He added it will require new advances todeliver in both the dimension of improved costs and the dimensionof improved capabilities. Gates characterized some technologydevelopments as a big surprise on the positive side, pointing towhat he said is continued improvement in price performance andstorage capacity.

Speaking of storage, he noted, [PC hard] disks have moved from amegabyte to 10 gigabytes [in capacity]. By the end of the decade, aterabyte will be the typical storage on a personal computingdevice. He also cited advances in wireless technologies, helped byeasy and inexpensive connections to get high-speed capabilities.Gates spoke of significant gains in server performance. Its clearnow that you can buy industry-standard Intel/Windows-type serversand get performance that in the past you would have had to pay fiveto 10 times as much for, he noted.

However, on the more sober side, there are a number of thingsthat have made this a tough year, Gates asserted. One negativefactor, he said, is a more conservative attitude toward capitalinvestments, particularly in IT spending, as well as the overalleconomic climate. Its very challenging, he said. It requirescompanies have the strength to see these [tech] advances through.Some of these advances, he added, will take many, many years ofdevelopment.

The complexity of managing systems is still a black mark. As youget more servers and more clients, the challenge this represents iseven worse, Gates said. Management software today is notsystematically bringing those costs down the way it will in thefuture, so theres a lot more work to be done there. A finalnegative, said Gates, is slow broadband deployment. Yes, theresbeen growth in the last year, but the prices have gone up somewhat,and its not as fast moving as many, including myself, would havehoped it would be, he said.

In terms of office workflow, Gates said Microsoft has identifiedsome of the inefficiencies that take place in the office. Therecent introduction of the Tablet PC was aimed at automating andincreasing efficiency where tasks like note-taking, reading, andannotation are necessary, he explained. Its gratifying that thisyear we had the Tablet PC launch, which has included some 15systems, with many more coming based on that concept, he said. AraC. Trembly

Global: Reinsurance

Insurer Takes ri3k

LondonAviva plc has embarked on a relationship with ri3k, theLondon-based technology provider, as a hub to transact its January1 treaty renewal business.

Craig Patterson, director of group reinsurance operations forAviva, says his company made the decision to use ri3k because itwanted automated tools to administer the structure of buying treatyreinsurance. Aviva, a London-based life and general insurer, is theresult of the mergers of Commercial Union, General Accident, andNorwich Union, all U.K. insurers.

Patterson says his company is using ri3k because it wantedsomething more than a trading platform that replicates age-oldindustry processes. One of the key issues for us was automating thecollection and cleansing of data from various countries around theworld into common structures and common currencies, he says.

Alex Letts, ri3ks chief executive, says the ri3k system enablesthe entire treaty process from preplacement, collecting the data,to placement, to administering the contract, and moving the databetween the parties. Further, ri3k creates a hub for routing thecontract data and the technical accounting data between any of thecounterparties in an XML format.

An Easy Tweak

As a data hub, the ri3k system brings the data in, puts it intoan ACORD/XML format, and then moves it out to the recipients, Lettssays. Even though the ACORD formats arent by any means universal,ri3k translates the data so that if the recipient has to tweak thedata, its a relatively easy tweak, he adds. From our end, the realbeauty of it is that you can have multiple systems, as long as thedata is funneled through the ri3k hub, Patterson says. He notes thehub works for companies that have proprietary systems for treatybusiness as well as companies that dont have proprietarysystems.

The ri3k hub provides a transactional administration system forcompanies without a proprietary system for treaty reinsurance,while it allows companies with a proprietary system to plug thatsystem into the ri3k hub, which transmits data and information tobrokers and reinsurers.

Eliminating Duplicate Efforts

Technologically speaking, the insurance and reinsurancein-dustry is well behind the rest of the financial services sector,Patterson says. He feels part of the problem is the requirement ofdata re-entry every time data needs to be sent from one company toanother. The insurance industry needs to cut out all the duplicatedefforts because the industry spends too much time on administrationand not enough time in actual strategy for risk management andanalysis of exposure and data, he adds. We want to handle dataonce, make sure its accurate, and be able to analyze it, so we canwork with the broker to determine the coverage required, at whichpoint the reinsurer can look at the data to price the exposure, hesays.

In phase one of the ri3k project, Aviva will use ri3k for anumber of smaller treaties for risks that require informationgathering from a number of different countries for the January 1renewals, Patterson says. The ri3k hub provides automatic riskprofiles and aggregate profiles in the currencies of the countrieswhere the treaty program is purchased, he explains. Were nowcollecting the data in a structured format, in a documentmanagement center, which will then allow us to collate thatinformation and then put it on to the ri3k hub, he says. The huballows us to appoint our broker electronically and for the brokerto move that information to the market again electronically in astructured way.

The underwriter at the reinsurer can access that information bypassword, Patterson continues. The underwriter then does a normalanalysis on that information and confirms his or her terms andcommitment, such as size of line, on an electronic basis.

Phased-In Approach

Phase one will begin the online signing of risks, which willfacilitate phase two of the project when cash and administrationwill move electronically, he says. During phase two, Aviva wants tobe able to message all of our risk profile information intointernal systems as well as into all stakeholders systems, i.e.,brokers and reinsurers, he says. This will then achieve anend-to-end process.

The system should ultimately cut frictional costs by reducingthe time it takes to analyze exposure and present the risk to themarket, he says. If we present all that information to thereinsurer, then we expect that should cut the time it takes thereinsurer to analyze and provide terms on business submitted. LisaHoward