We may not notice all the changes that have taken place over thelast decade unless we dial the clock back to 1999 and remember whatlife was like then for insurance IT. The Internet was big–forretailers–but insurance company Web sites were marketing devicesrather than a tool to conduct business. Insurers collected tons ofinformation about their policyholders, but they didn't know what todo with any of it.

Today, as Tech Decisions celebrates its 10th anniversary, wesought the opinions of IT leaders and industry observers to give ussome input on how far the industry has traveled in the last decadeand what the next 10 years hold for insurance IT.

Srini Koushik, chief technology officer for NationwideInsurance, believes the biggest change he has seen in insurancetechnology over the past decade has been the industry's push tocatch up with other industries in the use of technology.

"Insurance always has been behind the curve from an ITinvestment point," says Koushik. "For the last 10 years, a lot offocus has been on playing catch-up. Even if you think about theWeb, early adapters of the Web in retail already were there in thesecond half of the 1990s. Many of the financial services companiesbarely existed in that space."

Vivek Mehra, vice president of global financial services withKeane, Inc., agrees insurance has been a laggard in technology, buthe has witnessed some movement, particularly in the last fiveyears, to replace old mainframe systems, such as policy, billing,and claims systems.

"There is a huge operational risk riding on these systems," saysMehra. "Companies that are trying to grow through acquisition orthrough new states or bringing new products to market arediscovering these technologies don't scale."

BRAND IDENTITY

Beyond playing catch-up, Koushik indicates Nationwide has lookedfor opportunities where it could establish a name for itself. Inparticular, the company has put a great deal of effort in theclaims process. "It is the most important point–as a touch point–inthe whole insurance process," he says. Koushik notes Nationwide wasthe first to put mobile vehicles into hurricane-affected areas tohandle claims on the spot.

"We started doing that in 2003 and quickly realized people werecoming to us," says Koushik. "So, in 2004, we actually put [themobile claims office] on a trailer and added supplies such asdiapers and clean water. You had claims adjusters in the front ofthe vehicle, and then you had our volunteers helping from the backof the vehicle. It's an area where we could selectively get betterand go ahead of some of the [competition]."

Nationwide began its shift a few years ago, according toKoushik, as company leadership came to the realization IT is not aback-office function and can be used for a competitive advantage."We started getting more targeted about our investments so we canmake specific enhancements and get some really good benefits," hesays.

As an example, Koushik points out in 2006, Nationwide was rankedby one survey as having the ninth best insurance Web site. A yearlater, Nationwide had moved up to fourth in the survey, and in2008, the Web site was ranked third in the industry.

"That didn't happen by accident," Koushik says. "It happenedbecause our business invested in that channel. We saw growth ratesin the direct channel. Instead of taking the shotgun approach toinvesting in IT, we took a targeted approach not just to catch upbut to be in the top three."

It took a heavy investment to reach that level, Koushik remarks,and the company intends to retain that position. "When you think ofthe two carriers ahead of us–GEICO and Progressive–they arepredominantly direct carriers," he says. "They do more business inthat channel, so they spend a lot of money on that. We're amulti-channel company. Our intent is to not to take them on intheir strongest space. We know many of our peers want to be in thattop number three or four spot, so we are going to have to spendmoney to stay there, but we are not shooting to become number oneor two in that space."

BIG CHANGES

Larry Danielson, principal with Deloitte Consulting, believesthe Web allows carriers to address operational efficiency. "Thenumber of people who are employed today by insurance companies isdramatically different, and most of that is attributed totechnology," he says. "We're not where we need to be just yetintegrating all those applications, but operational efficienciesare clearly there."

Addressing applications more specifically, Michael Fergang, CIOof Grange Insurance, can't fathom an insurance entity today withouta comprehensive business intelligence or data warehousing strategy."At Grange, every decision we make is driven off ofinformation–from product design to the propensity of someone to buya certain endorsement," he says. "We have models that will tell uswhat makes a good new-agent appointment. BI is in the fabric ofwhat we do."

Danielson agrees with the increased use of information and theapplication of analytics. "The applications we are able to bringtoday on the information we've never used before gives us businessinformation where we can apply insight," he says.

Currently, that is being done in point solutions, but Danielsonbelieves the future lies in bringing that information together."With the application of analytics, the [ability of] new toolsmoving information around is improving–how we make decisions, howwe are proactive in what we do," he says. "This is where we need tobe in the future–so our business leaders can do what-if scenariosthrough the use of analytics, and we can make better decisions andactually avoid [mistakes]."

DISTRIBUTION CHANNEL

The distribution channel at Grange uses independent agencies,and the way the carrier makes it easier for agents is through theWeb, explains Fergang. Years ago, Fergang speculates, the carriercould have entertained using thick-client functionality to connectwith agents. However, he says, "the capability of the browser, Web2.0 features, the ease by which we introduce change to how we dobusiness with them today and how they do business with thepolicyholder–that never could have been satisfied with a thickclient. The Web has afforded us a great distribution vehicle and amechanism that allows our model of doing business to change."

Bill Arney, manager of workflow development, Great AmericanFinancial Resources, Inc. (GAFRI), agrees the biggest change he'sseen in the past decade has been the use of the Web. "It has givenagents and policyholders access to information they didn't have 10years ago," he says.

As a policyholder himself, Arney likes to log on and get toinformation when he wants it without getting on the phone. "It alsoallows users to make changes online, which is more prevalenttoday," he says. "Sometimes [customers] having access toinformation means more phone calls [to customer service], but [theWeb] puts the information in their hands."

Kevin Jones, application development specialist for GAFRI, hasseen a lot of improvement with business-to-businesscommunication–electronic information sharing. "In the past, thattook quite a while to compile because it was manual," he says. Now,responses are received usually between 24 and 48 hours. "It hashelped our through-put and our processing," says Jones.

Another aspect of distribution channel system improvement isfound in the way carriers deal with their independent agency force,suggests Mehra, adding such questions as where are the moreprosperous agents and how do you keep them happy are vital intoday's business.

"Keeping the best agents happy points to having a better agentexperience online–being able to provide the analytical andmarketing tools and real-time commission status to make itattractive for an agent to work with an insurer," says Mehra. "Thathas become a prime focus, especially since businesses have shrunk.People are trying to get new business, and they are turning totheir more profitable agents to help them do that."

Mehra also sees an increased focus on understanding IT needs toenable growth, especially from an M&A perspective. "The largercompanies are looking to become full-service providers–not justinsurance but wealth management, banking, and annuities," heobserves. "The regional and smaller carriers are differentiatingthemselves from the global players by being more local and moreresponsive. In both cases, they are looking to use IT as anenabler."

NEW DIRECTION

Fergang realizes a regional insurer such as Grange can't competewith the advertising dollars being spent by direct carriers, hesays. Nevertheless, he indicates the social media space haspotential for a regional company that sells through agents. "Theintegration between Facebook and Twitter is fun," he points out."You are seeing how it drives activity. The whole social media andhow these companies are trying not to be siloed–they are trying tofigure out how they best play with each other–is reallyinteresting."

Grange deals with 2,200 agencies, and Fergang believes theagents look to their carriers for guidance on how best to takeadvantage of some of the newer technology.

"There are some agents playing out there, but they don't havethe sophistication or wherewithal to figure out how to integrateFacebook, MySpace, and Twitter together," he reports. "We need tohelp them figure out how to do more than just marketing. A lot ofcarriers are just doing marketing [through social media] rightnow."

As the industry looks to the future, Danielson asserts insurersneed to address the reputation of the industry. "Insurers have tothink about how the applications can help better the way a companyis positioned and thought of from a stakeholder perspective–thepublic, the government–and I think as much as people would like tosay this bailout won't change us too much, I think it will be afundamental shift in the scrutiny with which taxpayers and peoplelook at companies now," he says.

There is a more work to do, states Danielson. "The industry hasdone an amazing job in improving its operations, but that story hasnot been told," he says. "If we look at the operationalefficiencies that have happened, we have only scratched thesurface. There is a high degree of automation that still has to beapplied. What people need to be able to do is get comfortable withthe automation. It will further reduce the amount of people who arerequired, but it will improve the quality of what happens."

Many administrative tasks will go away in the next few years,continues Danielson, and with Web enablement, more power will go tothe end consumer and other third parties such as agents andbrokers.

"A lot of the decision-making may shift," he says. "If you startto decompose the decision process, it will be pushed away from thehome office. That will not take the control away, but it willrequire more guidance, leadership, and more business knowledgecoming out of the home office to understand analytics and thetrends in business and be able to make decisions. Controls need tobe at a higher level. They can't encumber rapid change."

TRADITIONAL ISSUES

Regulatory issues are a way of life for insurers, Koushikbelieves, and that won't change any time soon. "We know given a lotof things that have happened in the financial services industry oflate, there is going to be more scrutiny," he says. "A big chunk ofthat is well deserved."

Insurers need to figure out a better way to deal with theseissues, though, he comments. In the past, insurers treatedcompliance issues as a project that needed to be done rather thanan ongoing issue. "What we've started to look at is [compliance]will be a normal business operation, and you do that with the samerigor as in other spaces," Koushik says. "For example, if we spendfive percent of our time on compliance and security issues on aregular basis, how do we do the same job with 4.5 percent of ourtime next year? You look at automation and lean managementprocesses to simplify how we do that."

Based on the government's involvement in business in the pastsix months, Fergang predicts the demands for regulatory compliancewithin the insurance industry are going to grow. "You have to get[compliance] done and get it done well," he says.

Furthermore, Fergang anticipates the industry is headed for someunchartered waters. "I can't fathom what's going to happen in thenext three to five years relative to regulatory reporting," heindicates.

Danielson also cautions the industry has a fair amount of workto do in the regulatory area. "If you look back 10 years ago, a lotof [compliance work] was manual," he says. "Today, we have a numberof point solutions, but the way we do regulatory compliance andview risk in aggregate is not where we need it to be."

The regulatory area has huge opportunities for insurers, addsDanielson. "There is a mindset that needs to change," he says."[Insurers] view regulatory compliance differently in terms ofwhere to spend, but as companies institutionalize regulatory intotheir day-to-day jobs, it will change."

UNSOLVED ISSUES

The insurance industry has been wrestling with legacymodernization for the last decade and then some, Mehra maintains,but carriers have not shown the speed and urgency still needed tomake this issue go away.

"Insurers will continue to struggle with this for five to 10years because the systems are humongous and there is just so muchimbedded in them it will not be a quick thing to migrate off them,"says Mehra.

Fundamentally, the issue comes to ROI, suggests Mehra. Some ofthese older systems, such as billing, are commodity systems, sowhen IT suggests improvements, the business side wants to knowwhether the company is going to earn any new premium as a result ofthis project.

"The answer is no–you are only going to safeguard the premium,"says Mehra. "It becomes a difficult sell. You have to find creativeways of modernizing the legacy. I don't think the issue is going togo away."

IT OF THE FUTURE

IT departments of the future will operate differently due to thetechnology skills currently being developed by tomorrow's ITstaffers, predicts Fergang. "I think the demands of the youngergeneration, who are savvy, will exceed what we can think abouttoday," he says. "I look at the developers we have on staff now; ifwe don't keep them engaged on newer technologies, they getrestless."

Grange affords these IT workers the opportunity to dabble withsome of the newer technologies. "A lot of the Web 2.0 features withmashups and Flash and Silverlight are almost like a given for someof them," says Fergang. "They have the propensity for wanting to doit, and we give them the opportunity to play and see how it can addvalue to our business."

The continued development of technology almost certainly willchange the way IT departments operate, adds Fergang. For example,"let me put my security hat on," he says. "I don't want [businessusers] to have access to Facebook and MySpace, but we have to findways to allow it because this is their network. This is how theyinteract with each other–not just at a social level–but how theyget information. They are asking peers technical questions–notproprietary things. So, even the social media are no longer justpurely social."

Koushik believes the older generation of IT workers is beinginfluenced by what the younger generation is doing today,particularly with social networking. "Ten years ago, an insurancecompany would look at [social networking] as a waste of time," hesays. "A lot of our policies are built around that oldermindset."

Nevertheless, Nationwide, like other businesses, have challengesto deal with, Koushik states, particularly in the area of privacy."We have to come up with an innovative solution on how we canleverage the technology, embrace it, and not ignore it and hope itgoes away, because it's not going to go away," he says.

IT departments in the next decade will be run differently thantoday, Danielson expects, owing to the technical sophistication ofyounger workers. Yet insurers need to remember their experiencedworkers have tremendous business knowledge, and Danielson feelsthat knowledge largely has been untapped.

"The challenge is to remain technically savvy, leverage businessknowledge, and not be intimidated by the technology but to embraceit," says Danielson. "People with less business experience willleverage their technical expertise and learn the business; on theother side, people who have more business experience have toupgrade their technology capabilities."

It's possible parts of IT will overlap into the business side inthe coming years, speculates Arney. "We've seen it here at GAFRI,"he says. "Departments such as quality assurance are looking at howwe can build our requirements by looking into the business to seewho would make a good requirements analyst."

The wall between business and IT will be replaced by a dottedline, predicts Arney. "Areas such as DBAs and infrastructure willcontinue to have more of a solid line between IT and business, butthere definitely are areas that will have overlap," he says.

MORE CHANGES

Arney anticipates more usage of hand-held devices and mobiletechnology in the future. Currently, through a GAFRI Web site,agents can upload e-applications, and GAFRI can import them forprocessing, he relates. "I think we will be moving toward hand-helddevices and allow applications from your iPhone," he says.

Nationwide is already there, according to Koushik. Recently,Nationwide became the first insurance company to launch a mobileapplication for the iPhone. If a Nationwide policyholder has aniPhone, the customer can use the GPS locater to point out theaccident site, use the iPhone camera to take pictures, and thenstart a notice of loss on the device.

"Even two years ago, you would have asked, How can we put thison the Web?" says Koushik. "Even though iPhones have only 10percent to 15 percent of the mobile market and our customers allmay not have iPhones, making critical transactions more accessibleto customers is a huge deal
for us."

Jones points to the pervasiveness of the BlackBerry as proof ofthe coming mobile surge. "Even though wireless and mobile have beenaround for a while, I think mobile is going to be like theInternet," he says. "It really is starting to come into its own andhelp us be more productive. I think that's where we'll see the hugeadvances over the next five years." TD