Our industry has often been criticized for not being on the cutting edge when it comes to technology. In fact, I seem to recall the word Amish being used once to characterize our industry (although that story is arguably apocryphal). This is probably an unfair accusation. Without insurance companies, we would not have been blessed with so many varieties of big iron data crunchers in the 1950s. However, in the PC and the Internet eras we have lagged behind related industries.

Securities

The securities industry embraced technology in the 1970s and banking climbed on the bandwagon in the 80s. Insurance didnt catch on until the mid-90s. There are valid reasons for this, though we really arent a bunch of Luddites. If you recall the state of the securities trade in the first half of the 20th century you will note that there were many small, regional exchanges. Inexpensive, reliable communication was not available so most major cities had their own stock exchanges where the affluent locals could trade securities.

Even the advent of the telephone didnt alleviate the need for local exchanges. Long distance rates were prohibitively high so it was still cheaper to trade locally (major transactions really took place at the big boards and transactions took some time to settle). Inexpensive long distance communications removed the need for regional exchanges. In the post World War II era one would simply call his local broker who would phone the order to their partner with a seat on the New York or American exchanges, and the trade order would be placed and executed. You would then be issued a paper certificate that represented your ownership in the company issuing the stock. No wonder these guys embraced technology!

The securities industry was able to substantially reduce transaction costs by using computer technology to:

eliminate human touch points by electronic transmission of trade data
eliminate printing and distribution costs by electronically issuing and holding stock certificates
eliminate a high-priced broker who would not only receive a commission on every trade, but would periodically hound you to churn your account to generate more trades
reduce the time necessary to complete a transaction (same day settlements are on the horizon).

The use of computer technology has totally changed the way the securities industry does business. Not only have they introduced new efficiencies into the business process, they also have introduced a new paradigm of how that business is conducted. Two things improve the business process and improve the customer experience. These are not easily quantifiable or easy to reflect in a ROI statement, yet theyre nevertheless critical. The securities industry has not suffered by embracing technology they have flourished.

Banking

Banking got into technology in a serious way about a decade later. Throughout the 1970s most tellers were not online with the mainframe. Daily transactions (pieces of paper) were typically gathered together at the end of day and transferred to a central location, key coded with the transaction information, and batched the same night. Customers could only complete a transaction or obtain account information by interacting with a person. When bankers adopted new technology they improved the way they did business by:

eliminating human touch points via ATMs and online banking
eliminating human touch points and improve business process through the use of online teller machines that post transactions as they occur
reducing the float on transactions
improving the customer experience by providing 24/7 banking.

There are some ironies here. When ATMs were first introduced they were supposed to make banking less expensive as tellers were taken out of the transaction loop. Now we have additional fees imposed on ATM transactions. Go figure. The point is that once again business processes have been enhanced as well as the customer experience.

What about Insurance?

The insurance industry woke up in the 90s and decided it was time to embrace technology in a big way. This is not to imply that technology had been ignored. We were using personal computers for our knowledge workers; we were using EDI for mainframe-to-mainframe transactions; and we had proprietary agency systems in place. But we hadnt used technology to transform our business the way securities and banking had.

The Internet had been around for quite a while, but it wasnt perceived as useful (to business managers) until the advent of the World Wide Web. We can probably date the real start of the Web to 1993 when the Mosaic browser (funded with your tax dollars) was introduced. For the first time we all had the use of a graphical interface to information provided over a free worldwide network.

In 1998 (just five years later) I attended an insurance industry technology conference where the mantra of the day was Internet. Senior management had taken a quick look around and decided that to be competitive in a rapidly changing marketplace they needed to be on the Web.

Enormous amounts of money and resources were thrown at the Internet. We created positions for Chief Technical Officers and eCommerce Officers and Web marketing and strategy departments. We created virtual universities and virtual agencies. We rushed forward to get everything on the net without mature technologies for doing so. We got caught up in the dot-com mentality. We made a lot of mistakes and spent a lot of money. Yet out of that headlong rush we have created some very cool and innovative webs. Lets take a look at the way we should be using the Internet to improve our business.

Its the Process, Stupid!

SEMCI (Single Entry Multiple Company Interface) and STP (Straight Through Processing) have been the Promised Land for the insurance industry since we first started automating. Why do we care? Its all about the money. In a traditional business system there may be dozens of human touch points in the process of issuing a policy. I have seen cost estimates ranging from $25 to $100 for every human touch point. Well designed computer systems eliminate these touch points while also controlling the possibility of human error.

The real problem in implementation is getting different systems in different locations to talk to each other. EDI was fine for mainframe to mainframe data transfer but did nothing for the agent or agency. The PC (Personal Computer) revolution brought us client server models and then multi-tiered models that have been used to build STP systems. And these systems workedusually using proprietary data connections or object models that were clunky or inefficient. Maybe, just maybe, we tried too hard to be cutting edge.

Until the advent of Web services (and componentized architecture), there wasnt a truly efficient way to build interconnected, disparate systems. Simply put a Web service is a collection of functions that are packaged as a single entity and published to the network for use by other programs. A true Web service will transcend platforms and systems. There now exist two different (and not incompatible) methods of creating Web services and Web service applications J2EE (Java 2 Enterprise Edition) and Microsoft .NET (pronounced dot-net). I wont compare these two initiatives now (but I will next month). I will say that these tools provide the means to efficiently build and deploy distributed applications.

Its the Information.

Any business thrives on information whether it is employee-, process-, or customer-related. My son was visiting me recently and logged onto his corporate intranet (he works for a Fortune 100 company). He had full access to all company policies and procedures; he was able to view his benefits and salary history, including expense reimbursements; he was able to modify the distribution ratios for his 401(k) plan. Can your employees do the same?

I recently saw a demonstration of a system built for the Chubb Group using technology from NextPage (www. nextpage.com). They have created an underwriting knowledge base so that individual experiences can be documented and shared throughout the enterprise. Chubb characterizes it as a lessons learned database. The stated goals of the system are to retain and leverage institutional knowledge, and learn from past experiences. It is designed to improve the decision-making process throughout the organization. The concept of using a corporate intranet to share knowledge and experience is simple yet revolutionary. Web technologies make it possible to distribute information globally by changing a document or database on one server.

Training can be accomplished in a similar manner. Electronic training courses distributed on a corporate intranet will ensure that all employees have access to the training materials necessary to perform their jobs.

NoIts the Customer

Many types of insurance are on the verge of becoming commoditized and no matter how many ways we package coverage, our product really isnt all that different from our competitors. Our customers are more informed about options available to them than they were 20 years ago. The Internet has allowed the public to become educated about everything, including insurance and financial instruments. They have also come to expect certain levels of service.

It may not make sense to sell insurance online (although Id say the jury is still deliberating this one). There is great value in establishing a human relationship with our customers. There is also great value in giving customers the ability to administer or view their policies online. It is much easier and cheaper to have customers change their phone number or address online than having them contact a customer service representative. Human touch points are very expensive on a per-transaction basis. Automated Internet systems are not.

We need to provide customers with the ability to download and print claim forms or policy-change forms. We need to let them have full access to their policy information, whether it be coverages (and charges for that coverage) or cash value. They should have the ability to get online quotes for coverage changes and then implement those changes. We need to provide our customers with as much information and as many options as we can. Every reasonable question and answer that a customer service representative handles in their normal work should be available online.

The customer remains king and we must do whatever it takes to retain that customer. A major part of customer retention and acquisition is easy to use, useful Web sites focused on the customer.

No Easy Solution

The problem with technology is that it is difficult to quantify the total return on technology investments. As technologists we tend to get caught up in whats cool. As business managers, we are too often involved in tactical issues, putting all our resources to work to generate immediate revenue. So much so that we fail to plan for the future. The successful companies in our industry will be those who plan strategically for the future, not just throwing money and resources at technology, but thoughtfully planning how we will use technology to improve every aspect of the way we do business.

Special Reports /

Insurance and the Internet

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