Editor's Note: The Iconoclast suggests that Tom Friedman's TheWorld is Flat should be mandatory reading for all of us, as ittells us how our 21st Century world might look. (One suspects,however, that Friedman's flat world is sort of wrinkled–China andBangalor do not make a whole world. For some, his view is a verypretty picture, but for many it will appear quite grim. In thisfirst of a multi-part series, our resident image-smasher takes alook at a flat world of claims and insurance in the comingdecades.

One of the Iconoclast's columns back in February of 1981 wasentitled, The 21st Century Adjuster. Many of those predictions havebecome commonplace; on others, he missed the mark. We have apaperless, computer-driven system. We have automatic communication,and electronic bank deposits. Vehicle appraisals, while not exactlywithout human involvement, are largely automated. But theprediction about medical science eliminating pain has not yet cometo pass, nor has the concept of “trial by computer” he suggested,where both sides submit digitized briefs to the court's computerdata bank and the computer renders the verdict. We're close,however–negotiation by computer is now commonplace, almost old hat.Technology makes skills “transferable,” and that's what can makethe world flat.

In labeling a “flat” world, Friedman cites the fact that insteadof just a normal eight-hour day, there are 24 hours in the worldthat can be used. While those of us on the East Coast are havingour lunch, the folks in California can take up the slack ofincoming business calls, simply by having the phones transferred.Likewise, while North America is sleeping, eager young collegegraduates in India can do the work that otherwise would be awaitingus the next morning. The tool is the trans-Atlantic fiber-opticcable and powerful computers. The doctor takes an X-ray at five inthe afternoon, electronically sends it to India, and the nextmorning at eight there's the radiology report.

To some degree, America is falling behind. There are perhaps asmany Asian students at MIT and Stanford as Americans these days,and they are taking the new wisdom home with them. While we debatemulti-lingual issues (usually hearing from those who want to make“English” mandatory–even though in some areas what passes as“English” would be gibberish to a Londoner–Asians, Mideasterners,and Europeans all learn many languages besides their own.

“When Chinese President Hu Jintao visited the oil giant SaudiAramco last year he didn't need a translator,” writes Afshin Molaviof the New America Foundation. “Plenty of Chinese-speaking Saudiswere on hand. A few years earlier Saudi Aramco had sent dozens ofemployees to study in Beijing. After all, China, not the UnitedStates, represents the future growth for Saudi oil exports.” Whatis dubbed the “New Silk Road” is no longer our old, slow boat toChina–the rest of the world now looks east, not west.

When this writer visited China 23 years ago, it was a ratherbackwards place, but was eager to join the 20th Century. OurChartered Property & Casualty Underwriters Society group heldjoint seminars with officials of the People's Insurance Company ofChina. They were anxious and eager to hear what we had to say, andwe were eager to hear of opportunities in China. The big deal thenwas “joint ventures.” It won't be long until they own the joint!The U.S. is already mired in debt to China.

Wal-Mart and the Flat New Economy

Friedman points out Wal-Mart and other American firms as anexample of world flattening. A Big Mac in Beijing may look a littledifferent than in Topeka, Kansas, but the golden arches are thesame. Wal-Mart is big in China, because China is the “new economy,”a new market for capitalism and consumer goods of all sorts. Afterall, there are a billion of them (and another billion in India),and only 300 million of us. Thus Americans are rushing to dobusiness in China and India and Indonesia, for these places wantwhat we have: high tech toys, hip-hop music, and gangster movies!And we want what they make: our clothing, our televisions andcomputers, our auto parts, and just about anything else one canfind in a Wal-Mart store in Topeka. But they don't want ourgas-guzzling autos, our speedboats, or mobile homes. They're toobusy becoming wealthy by their standards to have time to go boatingor camping.

In one PBS documentary shown several years ago, U.S.manufacturers explained that in order to keep up with the low-pricedemands of Wal-Mart, by then the nation's top retailer nationwide,they could no longer remain in the United States, paying U.S. wagesand taxes, and adhering to U.S. environmental and employmentpractices laws. In effect, they were forced to move theiroperations to Asia with its slave-labor-style wages and workinghours, thus leaving millions of textile and manufacturing workersin America jobless. Yet the Walton family tops the charts forAmerican billionaires. “Go figure!”

Let Technology Do It!

Technology could save millions of dollars for insurers, predictsBrian S. Cohen, president of Clear Technology of Westminster,Colorado, in the February issue of Best's Review. He suggests thatautomating the work adjusters do now could “unleash humanpotential.” He says, “We can use technology to leverage theproductivity and strengths of people, so humans can handle morecomplicated jobs that require judgment, while the vast bulk ofroutine work is automated. With most of the grunt work dispensedwith, employees would be free to think, make decisions, and servecustomers.”

Cohen suggests that technology “can bring efficiency to linearprocesses, but fails to do that when it comes to non-linear work.”That, he says, is what adjusters should be doing. “They know how tomanage a file–a labor-intensive process that includes filing billsand images, reviewing policy coverages, and obtaining informationfrom databases.” He adds, “The industry's most common solution isthe assembly-line approach. Like manufacturers, they have tried toturn people into machines.” He comments on “super-workers,” thosewho “take certain shortcuts that produce the best results faster.Today's technology can capture their expertise and encode it insoftware.”

While Cohen did not exactly clarify what he meant by linear andnon-linear processes, he appears to be referring to the steps ofconfirming coverage, obtaining the facts, assessing the damages,and issuing a check as linear tasks. Non-linear would be theevaluation and negotiation steps, factors such as setting a correctreserve, evaluating the coverage and liability, persuading theclaimant or insured regarding settlement, and recognizing potentialfraud (a factor that Cohen appears to have failed to take intoconsideration in his computerization of some claim processes).

Undoubtedly, Tom Friedman would shout “Hooray!” at Cohen'ssuggestions. Use technology to speed up things and eliminate busywork. Undoubtedly much of what Cohen has suggested is alreadycommonplace in many insurance companies, permitting downsizing ofclaim office staff and faster access for insureds and claimants tothe cash.

But it was only a few years ago that this columnist cited aCalifornia labor-relations case involving adjusters who maintainedthat they did not spend at least half of their day “on duties thatinvolve thought, creativeness, and the use of discretion andjudgment.” [The Court's wording.] Therefore, these adjusters arguedin court that they should be non-exempt employees, paid forovertime.

Putting the Customer in Charge

Cohen also suggests that insurers make a mistake by not allowingcustomers to control their own claim experience. He cites as anexample the “first notice of loss. The customer has to call andanswer a lot of questions. And at the end, the customer stilldoesn't have all the answers about the claim.” Instead, Cohensuggests that the customer might “get on the insurer's web site anduse a browser-based application that takes the customer through theclaim process. It would confirm coverage, provide choices of whereto get the car repaired, and authorize a check. Now thepolicyholders are driving the transactions and the solutionsinstead of waiting hours for someone to show up. They are doing itin their time and at their own pace. Their experience is betterbecause they control it.”

He suggests that the “self-adjusted” claim is “extremelycost-effective. It is the customers who are entering the firstnotice of claim, not armies of phone operators.” They will like it,he says, “because they feel in control and are assured that theirinformation will be entered accurately.” It would be like thatlittle Australian lizard that sells insurance. “Do it y'self,Mate!”

Flat-worlders may have a better idea for those who earn theirliving in claims: eliminate the jobs entirely and let a machine dothe busy-work, and send those tasks involving “thought,creativeness, and the use of discretion and judgment” to India.While a few of us old-timers might also fear that such automatedhandling is really an open door to fraud, undoubtedly safeguardscould be put in place to prevent that. Technology is the wave ofthe future. Many more of us will be doing the nitty-gritty oflife's routines such as reporting claims, booking airline orBroadway theater tickets, making restaurant or hotel reservations,and other tasks that once required us to actually talk to a humanbeing, by logging onto a web site. A flat world will be ado-it-yourself world. We can already check ourselves out at thegrocery store or at Home Depot, and anyone can buy anything oneBay.

Advantages of Agency Relationships

One of the surprises Friedman discloses is how one corporationcan respond for another. He cites a foreign television manufacturerwho used to have United Parcel Service (UPS) pick up a set that wasbeing returned for service to ship it to their overseas factory,where it would be fixed and returned to the customer a few weekslater. Now they simply have UPS pick it up and take it to a specialUPS unit that fixes it immediately on the manufacturer's behalf andsends it back to the customer within days. That is the sort ofinnovation that Friedman says is possible in a flat world.

Actually, that is not really new. It is similar to the conceptused by many insurers who “unbundled” their variousservices–claims, engineering, investigations–for their self-fundingclients. Even the insurers use similar processes, where an outsideadjusting firm may be the voice at the other end of aclaim-reporting line on a 24-hour basis, answering for whateverinsurer uses their service. The actual claim may be reported to theinsurer the following day, or may be handled by the adjusting firmdirectly with the insured being unaware that he or she is notdealing directly with the insurance company.

The concept is not really new. One party has acted as an agentfor another for thousands of years. The law is full of agencyissues and decisions. While the modern terminology is“outsourcing,” the principle is certainly not new. What is new isthe technology involved.

It is always interesting to me to ask where someone is locatedwhen I call a corporation about something. I know if I am callingmy local insurance agent who and where he is, but when I call mybank or my airline, I may be talking to someone in India, Texas, orUtah–rarely my own hometown. I'm happiest when at least I can talkto a human. What I dislike is talking to a computer, and that isbecoming much more common in American business.

What I hate even more is being told that I have to do it “on ourweb site.” The Internet is great, but why do I want to spend mygood time doing the job of those with whom I'm doing business, whenI could accomplish the task in half the time if I could just getsomeone to answer their phone. Maybe the X-Gen guys might likeCohen's notion of doing it ourselves, but I don't. I still like myworld with a bit of a curve in it.

Ken Brownlee, CPCU, is a former adjuster and risk manager,based in Atlanta, Ga. He now authors and edits claim-adjustingtextbooks.