Theres no doubt that the Internet is a wonderful technology.Over the last five years or so weve heard about the ways it willimpact the insurance industry. At first, the Internet was expectedto overturn existing distribution arrangements, whether throughdot-coms or incumbent carriers.

More recently, its thought the Internet may best be put to workhelping carriers serve their agents and agents their customers.Commonly recognized Internet issues include proprietary carrier Websites versus multi-carrier arrangements, single-solution XML versusstandard ACORD XML, straight-through versus single-step processing,and so on. There are other issues as well. Youre probably familiarwith them all and have an informed opinion about whats right foryour company.

But there are other, perhaps more important issues relating tothe Internet that are being ignoredeither because theyre invisibleor because we havent appreciated their potential impact. Ill touchon three: the certain failure of the Internet, the misuse ofcapital, and the overselling of remote Web services. All threecould prove disastrous to the insurance industry.

The Certain Failure
of the Internet
Let me be clear that I dont think theInternet will fail for most casual and consumer purposes. Butultimately it will not work for what are usually described asbusiness-to-business applications (e.g., carrier to agent). It isinherently too fragile.

The Internet was developed to have a high level of physicalresiliency. For the most part, transmissions dont depend on anyspecific physical routing. If a part of the network goes down,traffic is automatically rerouted. Its a clever arrangement.

But physical resiliency isnt enough. As weve seen over the lastfew years, denial of service attacks, worms, viruses, and otherforms of interference and destruction have become more serious,far-reaching, and persistent. Even with advanced warnings,anti-virus software, and readily available software patches, wholecompanies have been taken off line for hours or even days to cleanup the mess.

Its not going to get better. And the serious problems haventeven shown up yet. What would happen if a small group of modestlysophisticated technical people decided to make the Internetunusable through a massive proliferation of denial of serviceattacksnot just for a day but over weeks or months? Is ittechnically possible? From what I understand, yes. Would anyonehave the desire to make a concerted attack on the Internet itself?Given the events of the last few months and the unfathomablemotivation behind them, it would be rational to assume the Internetwill come under furious and frequent attack.

The industry becomes more dependent on the Internet dailyyet theInternet is likely to fail in ways we cant yet imagine. As aprudent and risk-averse industry, we should anticipate thiseventuality and arrange matters to minimize its impact. Onesolution might lie in moving industry B2B traffic from the publicInternet to a shared and carefully managed private IP network.

The Misuse of Capital
The inevitablebursting of the dot-com bubble may have been satisfying to theextent that business reality finally overtook fantasy. To a largeextent, the ridiculous business-to-consumer insurance services havedisappeared or are limping along living on the remains of theircapital. The roar became a whimper and finally a sigh.

Angels, venture capitalists, insurance carriers, and other risktakers who expected hundred-to-one returns lost millionseven ifthey havent acknowledged it yet. Write-offs, work-outs,bankruptcies, mergers, and other financial adjustments areunderway. In most cases, the investors will live through thedebacle. We neednt worry about them.

But the real damage isnt visible. The consequences ofsquandering capital on absurd business models didnt end with thedemise of those businesses. The misuse of more than $1 billionintended for the development of insurance technology may kill awhole generation of promising insurance technology businessesbefore they can come of age. Opportunity has been lost and thatwill harm the industry for the next decade or more.
Heres the residual problem. Its now enormously difficult forpromising start-ups and existing small insurance-technologybusinesses to get funding. Eighteen months ago, venture capitalistscompeted tooth-and-nail to dump tons of money into idioticinsurance technology ventures. Now the VCs wont talk to legitimateinvestment candidatesor if they do, they make absurd demands.

I know of five small insurance technology businesses that havegreat promise and could really make a difference to the industrybuttheyre having a terrible time getting any funding. The VC sins ofthe past are being visited on companies that deserve better.

If these and other small, ingenious insurance technology firmsfail outright or fail to realize their potentialnot because of poorideas, execution, or management, but because of an investmentatmosphere polluted by the dotcom stupidityits not just theseentrepreneurs who will suffer, its the carriers who could be savingthemselves millions by using these new products and services.

Whats the answer? A more intelligent approach to insurancetechnology investmentone built on the idea of creating excellent,solid, valuable companies that grow at a sustainable pace anddeliver ten to one returns over four or five years. We need newways to connect capital to opportunity.

The Problem with Web Services
Microsoft,IBM, Sun, HP, Oracle, and a cast of thousands are working hard todevelop an expectation that remote Web services will solve theperennial problems of computing. Want to be able to reuse code? Yougot it. Want to avoid problems of software installation andmaintenance? No problem.

Weve heard these claims before, of course. Object-orientedprogramming, component architecture, integrated developmentenvironments, CORBA/ DCOM, whateverthey were all going to do thetrick. But they didnt.

In the past, software panaceas were marketed as solutions tointernal problems. The claims for remote Web services are moregrandiose. They promise that systems of interconnected business,maybe whole industries can interconnect via remote Web services toachieve incredible efficiencies. The backbone on the effort restson a variety of XML standards, not simply the data transmissionstandards that are ACORDs preoccupation, but business rules, andhigher, even meta-level standards.
How will all this work? One piece of software, say a rating servicein need of an MVR, will consult a Web services directory, find acandidate, inquire into what it offers and what data it needs,decide to use it, make the connectionand then its off to the races.Everything will happen under the covers. The user wont need to payany attention. The technology will handle all the problems.

Does this make any sense? I dont think so. Its just toocomplicated. Heres an example of how Web services can causeunforeseen problems.

The inefficiency of current processing systems, the use ofpaper, the need to re-enter data, and so on, is much maligned. Webservices, we are told, have the potential to automate theseprocesses end-to-end, even across corporate boundaries. That soundslike an unalloyed good.

But what happens when some part of this automated end-to-endprocess fails? Who will know what has failed where? How will it berepaired? What are the work-arounds and how will they be put inplace? The inefficiencies of systems actually sometimes serve asalutary functionas a kind of firewall. The absence of automaticlinkage means that the whole can stand even when one partfails.

Whats the solution? A world of free-standing Web services wontwork, but a collection managed from a central site could. Whatsneeded is some kind of service that can take responsibility forintegrating a select set of services for a particular population.In this industry, carriers will need to orchestrate the Webservices they use and agents will need to depend on integrationservices that oversee and manage what they cant possibly cope withon their own.

The Unintended Consequences
The move fromprivate networks to the Internet can save carriers money and makeit possible for agencies to link to multiple companies through oneIP connection: the Internet.

Unfortunately, public Internet reliability and security problemsarent soluble; to depend on the Internet for survival is to courtdisaster. An industry-wide, private IP network might be theanswer.

Greedy VCs and others hoped to make a killing by investing inbrave-new-world insurance Internet technology. The failure of thatinitiative is killing rational investment and needed technologicaldevelopment in better-faster-cheaper solutions. A special purpose,practical, lower-expectation fund or funds could provide the neededantidote before the whole industry gets sick living on staletechnology.

Remote Web services are an interesting and promising idea butone thats oversold by miles. Were the industry to follow the pathas marketed, little would really work as promised. Web serviceshave the potential to create more chaos than order. On the otherhand, managed integration platforms and servicesand generally lessambitious expectationscould bear nourishing fruit.

The law of unintended consequences is absolute. It has noexceptions. Shouldnt this industry anticipate and then amelioratethe unintended consequences of the Internet? Makes sense to me.

John Ashenhursts company, Sound Internet Strategy, providesconsulting, Web site evaluation, and seminar services to carriersand their trading partners. He can be reached at johnashenhurst@soundingline.comor (978) 318-1944.