More than a year before the supposed Y2K meltdown, carrierpolicy system sales plummeted. Although 1999 was disappointing,vendors believed carrier inaction was the result of preoccupationwith Y2K and the resulting freeze on the deployment of newtechnology. That made sense at the time.

When the next year, 2000, also proved slow, vendors pointed to apersistent Y2K shadow. But 2001 wasnt a good year eithersales didntapproach 1998 levels. Now were three years into the policy systemrecession with few encouraging signs on the horizon. Y2K was agreat rationalization for a while, but not any more.

Whats the problem? Is there a problem? Why arent carriersbuying? What are the implications for the industry? Is it failingto meet 21st century challenges? Are carrier dinosaurs not cleverin their conservatism but rather dull and slothful? Is theindustry, as usual, going to hell in a hand basket?

The Remembrance of Pain Past
Virtually allcarriers have some measure of automation in personal and commerciallines, usually a lot in the former and less in the latter. Thesesystems, sometimes 10, 15, or even 20 years old (with patches likea quilt), were implemented only with great effort and often atsubstantial economic and emotional cost. Many companies went to thewalland sometimes the courtsbefore they saw daylight. Naturally,theres some reluctance to do the same thing all over again whenwhat they have works, more or less.

A handful of carriers did make decisions in the last few years,attracted by the too-good-to-be-true promises of the likes ofTenFold: Dont worry, be happy. Weve got a new approach and youregoing to love it. In most cases, the efforts of the new guys haventpanned out. Insurance turned out to be significantly more complexthan enthusiastic industry outsiders ever imagined. So here wasmore pain for carriers, some of it ongoing, and those on thesidelines took a step back and sat down.

Most carriers are looking at providing agency or consumerself-service functions on the carrier Web site. Its a way to offeranother service channel and, with the right engineering, reduceprocessing expenses. Unfortunately, many older systems dont havethe right architecture to support Web extensions. These card-imagesystems can handle only one change to a policy per nightly cycle.Not promising for a flexible, real-time environment.

More than one carrier has complained to me that many systemsavailable for sale today continue to have inadequate architectures.No matter what the vendor says, underneath theyre not designed tohandle future insurance processing and distribution needs. Oneproblem is the all-or-nothing approach of some vendorsthe newsystem cant work in cooperation with the older system; the newsystem must replace the old. Thats not a happy prospect forcarriers that have been there, done that. Old, warmed-over systemssimply cant generate much carrier enthusiasm. Thats notsurprising.

The Incumbents Dilemma
Veteran vendorsarent asleep to the fact that sales are slow. But they live onservice fees and professional services while they think aboutdeveloping brand-new, more modern systems. Development isnt cheapor easy. How would they fund it? Likely it would require outsideinvestment, and whos willing? And where would the energy,expertise, and new thinking come from when the vendors focus is onsupporting legacy systems? And, since sales are slow, would it makesense to make a major investment in a new product? Why bother, whenits possible to live on the annuity of an installed base? Notexciting, but its a living. And anyway, the customers arent reallycomplaining. What they have works and theyre happy to get regularmaintenance releases.

The Challengers Dilemma
A new generationof vendors, with their investment partners, is making anappearance. Where older systems are monolithic, they propose acomponent strategy. Carriers dont have to replace entire systems,but can install one module at a timea less risky and less expensivealternative. Theyre using XML, SOAP, and the accoutrements of theremote Web services model. They may offer hosting. Rather thantrying to do everything themselves, they partner with other vendorsto create an inventory of modules that can add up to whatever acarrier might need. And instead of adding browser access as anafterthought, these systems are born with thin clients.

But while these new offerings promise to fulfill carriersemerging needs, at least on the surface, the carriers arent biting.They point out that the software isnt quite ready and certainlyhasnt been fully exercisedand therefore is a bit risky. They alsoworry that the new vendor, with inadequate current revenue andliving on investment money, may run out of cash before enough salesmaterialize. The carrier doesnt want to risk its business on apromising but unproven vendor and product.

The Carriers Dilemma
Carriers know whatthey have now really isnt going to work over time. The chewing gumand bailing wire needed to bring legacy systems to the Internetwont hold up from a technical perspective. And administrativesystems, what most carriers have today, dont support newercustomer-centric business models.

That would seem to point those carriers toward shopping for,buying, and implementing new technologies, no matter how hard itmay be. (And no matter how painful they imagine the installationand conversion process will be.) The need for upgrading appears tobe a fait accompli; its simply a matter of biting the bullet andchoosing the vendors.

On the other hand, the new vendors that appear to have the goodsdont have a track record, and given the history of the last fewyears, may not last. Neither the status quo nor available changeseems to be the right answer. Sowhen in doubt stay with the painyou know.

The current situation is interesting because it appears everyoneis going to lose. Incumbent vendors cant generate enough revenue toposition themselves for the new centuryand must, over time, witherand disappear. Challengers could end up having trouble makingenough sales to outlast their investment nest egg. Carriers neednew technology but cant get it from the incumbents and wont buy itfrom the challengers, so their business strategies sputter orlanguish.

Its an untenable state of affairs that has the potential tocripple the industry for the next decade. We can blithely say itdoesnt matter because everyone is in the same boatthat is, nocarrier will gain competitive advantage if all stay put with whatthey have. But thats not the whole picture. Outsiders came afterthe industry, especially via the Internet, and they failedmiserably. But thats not the end of the story. Those outsidersthatnext generationwill be back and more effective. The industry is toorich a plum and too backward for them to ignore.

The Home Depot Approach
Perhaps carriershave more than two choices: buying from proven incumbents and notgetting what they want or getting what they want but having to buyfrom unproven challengers. A third alternative is for carriers tocreate what they want using rapid application developmentenvironments from the likes of Microsoft, IBM, Sun, and Oracle.

But there are disadvantages to do-it-yourself, as Ive foundafter frequent trips to Home Depot. Generally, I dont reallyunderstand how to do a home project until Ive done it at leastonce, but Im not likely to get a second chance. Consequently, Itake too long and cant quite do a professional job. I dont realizeany economies of scale. Thats OK for home projects; my one-shotlearning-through-doing is good enough. But should carriers bettheir businesses on homegrown systems?

One-off application development is expensive and can never wringout the bugs, provide professional-level documentation, or be asflexible and forward looking as well-done professional softwarepackages.

Whats the Answer?
Carriers need newtechnology. What they have is worn out and doesnt adequatelysupport business strategies that require Web site self-service,real-time processing, rate/bind/issue at point-of-sale, integrationof remote Web services, business-rule maintenance by businessanalysts (rather than software engineers), and so on.

Veteran vendors have a patina of respectability, but not thegoods. Upstarts may have the goods, but longevity is an issue.Carrier do-it-yourself is a false hope. Whats a carrier to do?

The simple answer is to move forward without betting the farm.The rule in rock climbing is to move only one hand or foot at atime. Keep three points in contact with the rock. Make sure yourebelayed by someone dependable. Never, ever jump from one point toanother.

Carriers dont really have a choice. Theyve hung back too longalready. They have to move forward. But done right, the processdoesnt have to be frightening or threaten the life of the business.The alternative, remaining in place, is the really scaryalternative.

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