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In what direction is technology headed in the insurance world come 2005 and beyond? With grid computing power, tools such as GPS, and better understanding of the data being collected, technologies now on the fringe will be playing a larger role. Industry experts whose job it is to be on the leading edge of IT development believe these solutions will make a carriers life easierand more competitive.
By Robert Regis Hyle
The first half of this decade has been a most exciting period in the marriage of technology and insurance. New tools, such as Web services, have created a challenging atmosphere for IT departments. Not every solution has met the needs of the industry, but more shots have been on target than off course. So where will technology take insurance as we head into the second half of this decade? Forward-thinking technology experts from IBM Research, META Group, and Gartner see the coming years as an era when computing power will become more availableboth in the office and in the fieldand IT departments will continue to merge computing talent with the business needs of the industry.
MORE THAN SLOGANS
Daniel M. Yellin, director and area strategist, programming models and tools, for IBM Research, believes the insurance industry will stay focused on being more flexible, resilient, and quick to respond to the market. The term 24/7 will be more than just a slogan. Such availability creates a different model to some degree and resonates quite well with customers, he says. As [such availability] occurs, we see kind of a corresponding change in what is going on in IT that supports the business. If you look at things such as how long it takes an insurance company to develop productsit takes way too long for most companies. Look at the need to respond to regulatory and compliance issues. There are better ways to guarantee compliance. If you look at the ability to take advantage of new technologies or new applications, its hard for most insurance companies with their heavy legacy environment to do so. These are some of the pressures IT departments are grappling with within insurance companies.
Yellin asserts companies are beginning to move forward aggressively, and some carriers have different models to achieve their goals. Some [insurance companies] are beginning to look at where they need to be and are building out the next level of infrastructure to get them there, he says. Some are taking a very architected approach and looking at service-oriented architecture (SOA). What seems to resonate is the idea of an SOA that means you are looking across the enterpriseyour portfolio of applications and your portfolio of technologies, and you start putting them into more discrete units. You make that capability available through services offered to the rest of the enterprise. Then you can begin rationalizing your applications and your infrastructure, looking at how you can start opening up and trying to investnot just in the maintenance of the existing portfolio but freeing up dollars to look at some of the newer technologies.
John Flynn, senior vice president and research director for META Group, contends insurers still are curious about what grid computing means to the industry. There is a varying set of definitions out there, he says. On one end, [there is] on-demand services, and on the other end, grid computing or highly intertwined, interconnected, smart, healing network schemes. Our client base is asking us fundamental questions: What is grid computing, where does it fit in, and how real is it? Is this thinking for the future, or are there real applications today? Can I get a high degree of persistent use of this thought or technology?
METAs point of view in the insurance industry, according to Flynn, is grid computing has the potential to yield benefits in functional areas or in specific types of challenges insurance companies face with demand-based computing. We have by no means seen simplified commercial solution sets that allow CIOs or technology executives to acquire grid-computing capacity and apply it in a way they can get clear measured business benefits, he says. Were advising them to watch grid computing. It should be on their radar screen in terms of forward-thinking technologies. But [META] doesnt see very persistent, broad adoption of grid computing against particular types of business problems across the industry. Its just too soon to tell.
SHARED INFRASTRUCTURE
Yellin believes technology workers look at the idea of grid capability as a shared analytical infrastructure where computation is available to begin performing risk analysis. A whole bunch of drivers within the insurance company can have a common way of accessing for analytical purposes the tremendous amount of computation available, he says. That opens up so you can start analyzing your data in ways you havent before, looking at a tremendous number of scenarios and simulationsmuch better risk management. That allows you to do even more customization.
Grid computing offers users the ability to run actuarial and other difficult problems literally orders of magnitude faster, states Yellin. Before it would take an actuary a few hours; now, it takes a few minutes, he says. That allows a lot more innovation to occur, because instead of doing it one day and coming back the next daywhich really limits what you can doyou can start playing around with this in a single day with different scenarios. It gives you a lot more leverage. The fact you can do this so much quicker gives you more capability to do more insight. Were going to see new sorts of analysis you just couldnt do before. Theres more data than weve ever had before. But its not only that theres more data, there are new mathematical techniques and computational power that allow you to use these mathematical techniques. You can start modeling. Its very common to look at the hurricanes and all the loss to insurers and reinsurers, but with risk analysis and natural events forecasting models, were going to be able to build much more sophisticated models and simulate and understand the impact in ways we never could in the past.
INSIDE INFORMATION
Carriers need to know as much about their customers as possible to satisfy the customers needs, Annie Earley, vice president and research director for Gartner, points out. But the policyholders dont want insurers to have information that is outside the carriers immediate need. Its really a balancing act of how you address the consumer and how you use that information appropriately for the condition the consumer is calling you about, she says. Privacy and security are very big concerns, but customer satisfaction and the convenience of doing business easily with that consumer are just as important to retention and loyalty on the other side of that pendulum. If insurers can offer consumers reduced rates and fees, [customers] are all for a global positioning system [GPS]. But if its an intrusion into their privacy, they are all against it. The marketing and positioning of the insurance company and how to use those technologies are vitally important. A win-win for both sides is much more effective.
The interest in mobile technology has gone up and down in recent years, Flynn believes, but today it is headed in an upward curve. Weve seen it go through a high-demand curve, drop-off curve, and now its starting to creep up again, he says. Its creeping up because technology is getting stronger in terms of the networks it runs over. The devices are getting easier to program against. The devices are getting more cost-effective. And there are more applications being built for these devices. One might argue mobile still is a very advanced technology, or one might argue mobile is no longer advanced but a beginning-to-mature technology. Its not by any means matured, but its getting to the state where its more predictable and reliable, and I can create an ROI that is more believable.
Yellin is intrigued by the use of GPS technology in insurance. Instead of underwriting based on actuarial characteristics, [insurers] are looking at underwriting based on your real driving habits, he says. Do you speed? What neighborhoods do you travel through? It tracks you and rates you based on those characteristics. You have to agree you are willing to do this. There are a lot of privacy issues. He reports IBM Research is working on privacy architecture for these issues. The insurer [will be able to] get enough information to rate you, but the insurer cant get any information you dont want it to get, he says. You might not want [the insurer] to know exactly where you are going. There might be a device that can get access to the information to get a rating, and if you ever challenge that rate, you can look at the real data. As an industry, we need to sort out privacy. We have the ability with these black boxes to cut down on fraud.
RISK AND REWARD
Despite 100-plus years of history on how to do risk analysis, Yellin asserts improvements can be made. Weve done projects with an insurer where we looked at claims data and coupled it with demographic data, and we were able to show we can find [new] things. If you look at typical underwriting rules, [they are] based on the law of large numbers. You put a lot of people in a single bucket, and they come up with rules that are profitable for a large segment. Were able, through data mining, to say in this large pool of people there are large segments we automatically can find for you that have different underwriting characteristics, and if you know that, you can price to those segments better. There are some segments you might want to price higher, and some you might want to price lower to get more market share. You can start seeing trends in certain customers and put things together in a way you couldnt before.
From an architectural perspective, Yellin explains, grid computing provides a common platform, so anyone who wants to do a computation doesnt have to build his or her own machine, and the grid provides a common infrastructure for everyone within the enterprise to access this computing resource. He also believes remote workers can tap into this infrastructure. You can imagine a claims adjuster out in the field, and now, through a device, he is able to tap into that grid infrastructure, he says. As an example, he points to the creation of digital images. With a camera, you can take a picture of a damaged vehicle, and we automatically can compare that picture to before the damage, and it automatically will recognize where the damage is. You might ask, Does this resemble any known sort of fraud we have? You can imagine the [adjuster] out in the field being able to access a grid that will do analysis of that diagram, not just show you the before and after, and start helping in your assessment to be better able to detect fraud. Theres no reason this cant be accessed remotely. The grids know what capacity is out there and provide the common access mechanism, so if you submit a job that needs to be done, it will find the best place to execute that job, where there are free resources based on priority, and come back and give you the results.
WIRELESS WORKS
Wireless communication is going to be a tremendous asset for claims people in the field, Earley states. The first notice of loss being [submitted electronically] by wireless technology will definitely pick up, she says. There will be automated technology available to the adjuster that will help in the settlement, especially when it comes to identifying the total relationship the client has with your organization, being able to detect areas of concernany type of fraudulent activity, for instanceas well as quick and easy settlement for convenience and client satisfaction.
There will be wireless communications with many capabilities of geographical information systems (GIS) available, according to Earley. This will permit adjusters to be connected to databases that will allow them to have contextual information and a more complete composite of that customers relationship with the organization. She cites wireless tablets, wireless connectivity to service providers and suppliers for easy information on replacement costs, and the suppliers availability to support whatever need the consumer may have through the insurance carrier. Bandwidth has expanded so much the last couple of years, she says. Who would have thought?
IT LANDSCAPE
How you deliver IT will be changing, from METAs point of view. The one thing that will not go away with IT is the need to manage IT like a business for the direction, the investments, the control, and the measurement of results, says Flynn. As organizations constantly go through these cycles of consolidating, individualizing, decentralizing, outsourcing parts or all of it, or radically transforming the role of IT, the one thing constant in all of those initiatives is how they will be managed. The management discipline, by treating it more with the rigor and discipline you would use to run a business, is increasing and is going to be applied whether you are wholly owning [the initiative] and running it yourself or you are outsourcing it to a partner. Flynn doesnt believe the need for IT is going to go away. The critical role it plays in delivering business value will not go away, and we believe that actually is getting greater, he says. As technology simplifies itself, the demands on technology become much greater, and what is radically increasing is bolstering the skill set of the IT leadership team to be able to run IT as a different value proposition.
Its a shared partnership between IT and the business side, Earley contends. When you share that partnership, the value of IT becomes escalated within the organization and is seen as an enabler of technology initiatives for the business unit, not as the dictator of what technologies will be used, she says. Technology for technologys sake is not as vital as the use of the technology for business initiatives, either to drive down costs or to drive up profitability. The combination of the two is where you get the synergy to promote your competitiveness, and thats what IT provides youa way to be competitive in the marketplace and a way to create more insight into that customer while being able to retain and create loyal customer relationships. You cant do that without technology, but the business initiatives really drive and enable the technologies.
UNDER REVIEW
Earley observes a real transformation taking place within insurance companies. [Carriers] were very siloed, and I see the transformation to become more holistic and cross the insurers product base, she says. Technology advancements have made that possible, but there is a real focus on underwriting profitability. The hard market we had really helped that profitability picture, and now the focus on keeping that profitability is number one in their minds.
In her assessment, other areas under review by insurers include managing losses, mitigating risks, looking at claims differently through more efficiency controls, and focusing on more areas of fraud. In the past, fraud wasnt as high on the scale as it has been the last three to five years, says Earley. It will continue to be a part of savings for claims, only because technology advancements now are available to bring disparate data systems internally and from external sources together to help the insurer understand the full relationship. There is going to be a heightened focus on distribution management and on how you can get information to agents and carriers and bring it back more holistically as well as efficiently so agents dont have to replicate their data multiple times.
BEING AWARE
In addition, the coming years will bring a heightened awareness of what both independent agents and carriers need to support each other, Earley continues. Some of that will involve technology, some will involve ease of use of the technology and making it available in a very simplistic way where you dont have to have 49 different passwords to get into different systems, she says. The availability of that information will mean the agents and the carriers will be in much more communication as to what is important to them. Now we have, Here it is, please use it. In the future I believe we will have, What would you like, and Ill do my best to support that.
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