The insurance industry has welcomed the advancements oftechnology and has continually been among the leading buyers oftechnology.

From the advent of the earliest insurance systems to modernstate-of-the-art application suites, the one constant is that theinsurance business continues to move through financial cycles,business cycles, changes in our culture, demographics, regulations,work processes, and products. Many of these changes require theacquisition of new technology or systems. In the area of insurancetechnology, one area that stands out is the overall need fortechnology to be flexible, adaptable, and designed for an unknownfuture.

The industry's focus on technology is necessary because of therapidly changing business and consumer insurance marketplace — butit does cause concern in the executive ranks. Insurance CEOsrecognize the importance of technology in their business, but theydon't want to be known as a technology company that happens to sellinsurance. They would much rather be insurance companies thateffectively use technology to help the company grow and meetstrategic objectives.

Overcoming history

Insurance companies have been major users of computing since theearly data processing machines were the norm. Big mainframecomputers took up huge amounts of space, required heavy dutyair-conditioning, needed raised floors to hide all the cables andwires and consumed whole forests of paper. Companies found thatcomputers were very good at managing accounting and financial data,information on customers, agents, coverage, claims and otheradministrative tasks. And, as companies grew, so did their dataprocessing requirements, causing companies to buy more computers,add technology staff, and begin a cycle of ever-increasingtechnology and administrative costs.

With no real standardization in computing, computer vendorscreated their own programming languages that were unique to theirsystems. Univac, IBM, Hewlett-Packard and other companies all hadprograms that could, for example, manage accounting, but eachvendor had its own computing language — complicating how differentsystems could send information. The development of COBOL as aprogramming language helped reduce the complexity and redundancy ofdata processing, making it easier to manage programmers and othertechnology staff.

To make technology more useful and viable, data-processingcompanies had to develop programs that did more than simply add upnumbers and print reports. In other words, these companies had tocreate software that solved business problems and eitherreduced cost or improved processes, rather than just generatingprintouts. The true beginning of modern information technologybegan with the development of databases that could manage moreinformation than 80 columns on a punch card. Once that occurred,computing costs, especially in financial services, started todecline as innovation sparked by advances in technology began toenable true information management.

Drexel University President William Hagerty, left, talkswith chemistry Professor Allan Smith after the Institution helpedunveil Apple Computer's new Macintosh on Jan.25, 1984, inPhiladelphia. The Macintosh became the mandatory electronicworkhorse for the school's 1,870- student freshman class. (Photo:George Widman/AP Photo).

Usefulness comes in through themini-computer

Although the main use of technology centered on financial andoperational reporting, the real change came with the advent of themini-computer and distributed data processing. The mini-computer,not the personal computer, revolutionized how information wasgathered, collected, managed, used, and stored. With the minicomputer, software developers began to create applications directedat reducing the footprint of "big iron" and get computing power andcosts out of the home office and into branch locations anddepartments such as underwriting and claims.

As the mainframe market shrank, the market for smaller computingsystems grew. Most people are aware of the emergence two operatingsystems: Apple and Microsoft. What Apple showed was out-of-the-boxthinking with the personal computer. Between the Macintosh andApple LS2, business began to see the potential for downsizedcomputing needs and upsized capabilities. What Microsoft createdwas the concept of a standardized operating system that enabledsoftware applications to be developed that would work on differentcomputers. In short, Apple proved the concept, Microsoft proved theway. And the way was for software developers to invent and createtools and applications that made business easier to manage, onmachines that took up a fraction of the space and were friendly tousers.

Applications:  The true beginning

The road to "modern" technology systems begins with the era ofMicrosoft, Apple and Intel in the mid-1980s. The Apple Macintosh,introduced in 1984, was the first mass personal computer. Withseveral prepackaged applications for word processing andspreadsheets, it became a favorite in the world of accounting —proving that the Mac wasn't a toy but a real business tool.Microsoft, at around the same time, developed MS-DOS, which enabledother companies to develop software applications that would run ondifferent manufacturers' computers. As a software-developmentcompany, Microsoft soon realize that usefulness and functionalityof the personal computer required applications that could do wordprocessing, develop spreadsheets, handle business communicationsmail/messages, and other common functions that could now beautomated.

If one stands back 15 years or so, the depth and breadth ofgrowth in the technology has been breathtaking — but so too are themyriad business and consumer tasks and processes that are nowhighly automated, functional, and taken for granted as technologycontinues to advance. A major force supporting this Moore'sLaw-speed innovation has been the insurance industry, which hasalways been first in line to try — and in some cases, create orinnovate — these new systems. As mentioned at the outset, theinsurance business is in a constant state of change as our culturechanges. To stay on the cutting edge — and even to remain relevant— insurance technology needs to take a note from its history andkeep adapting, stretching and reaching for the emerging known.

John Sarich is vice president of strategyat VUE Software. Heas more than 25 years of insurance industry experience, and hasclosely tracked the history of technology's role ininsurance. Sarich can be reached at [email protected]. 

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