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Life Underwriting

Follow the Rules

A study of life insurance underwriting tools shows some carriers arent utilizing electronic data to a competitive advantage.

The popular belief that selling life insurance electronically is not an effective sales channel ignores a powerful tool that can make the collection of data more efficient for life insurers, according to a recent report released by Celent Communications. The Evolution of Rule-Based Life Underwriting Systems was written by Celent analyst Craig Weber. He says rule-based decisioning is valuable for insurers because the underwriting process is based on rules and regulations.

There are two important functions a carrier needs to perform in the short term to make its rules engine more effective, he believes. The first is the electronic application. Weber describes it as missing in action from most carriers. Thats an important precursor to having any kind of expert system, he says. You need to get the data you are evaluating in electronic form. Systems cant deal very well with underwriting requirements found on paper.

A second area many life carriers dont yet have in place is what Weber calls requirements management. Thats a system to take the basic information about the case and figure out what medical requirements you are going to need to order to evaluate the case, says Weber. Typically, attending physician statements or EKGs might be ordered for policies over a certain face amount. That process is pretty straightforward. Most carriers have a table that says, At this age and this face amount, what are the requirements? We think it is a simple and powerful thing to have a system in place to do thatfigure out what requirements are necessary, go out and make the orders to the paramedical vendors, and do it in an automated, hands-off way.

Web-based data entry has become a cherished part of most businesses today, relegating the old client-server application to the museum along with paper and pens. There is more out-of-the-box functionality for tools to do these things today than there ever was before, says Weber.

There may never be a point when all life insurance policies can be completely underwritten in an electronic environment. Weber concedes it is hard to translate a treadmill EKG to an electronic insurance form. Still, he believes insurers have been misled into believing they dont need an electronic data stream because there is going to be some point in the process where there are paper-based requirements. That misses the fact that some percentage of every carriers business is lower face amount and younger ages where you dont need the paper-intensive requirements such as attending physician statements, he says. Theres an opportunity to automate a chunk of your business, maybe one-third of it. He believes many carriers have not invested in electronic applications because they were focused on higher face value policies.

Looking to the next generation, though, Weber believes life carriers should electronically collect as much data on their policyholders as they can get. Even if you write business that requires data that is not in the right form, there are ways around that, says Weber.

The other key aspect for a next-generation system is alternative data collection and underwriting methods. Carriers might see the end of the days an agent sits across the kitchen table from a client. Call centers will review an application over the telephone and get a voice signature.

Once youve made that shift to an alternative data collection method, says Weber, it opens the possibility of driving decision making all the way out to the point of sale.

Wireless LAN

Market to Grow Quickly

The wireless local area network (LAN) market could grow by as much as 30 percent annually, according to META Group, which presented its findings in a recent METAspectrum evaluation. The Stamford, Conn., research and consulting group evaluated vendors that focus on providing wireless solutions based on the IEEE 802.11 standard, according to Chris Kozup, senior research analyst in METAs global networking strategies service.

Kozup says wireless LAN products must include advanced features for security, management, and reliability. He also indicates they must demonstrate a clear commitment to advanced features.

Among his findings in the report, Kozup believes:

Vendor success depends on a mixture of performance and market presence.
The market has undergone a transition from emerging status to full growth with technology quickly becoming commoditized.
Selecting a strategic partner for wireless LAN initiatives is critical.
Best practices organizations are developing wireless LAN policies proactively.
By 2004, market presence is expected to increase in importance relative to performance as the technology matures and users place greater value on market penetration and vendor viability.

Security

Consumers Worried About Online Information

For e-commerce to succeed in the insurance industry, data will have to be sent over the Internet, but insurance carriers must first alleviate consumers fears on the fate of that information if they expect the online channel to grow, according to Insuring Consumer Confidence Online, a recent study conducted by IVANs.

Opinion Research Corporation Inter-national conducted the telephone survey for IVANS, interviewing 1,024 men and 1,035 women ages 18 and older who live in private households in the United States. The study revealed the smallest violation of consumer trust could destroy a carriers credibility. Some 66 percent of respondents are concerned about the security of their personal property information sent over the Internet from a claims adjuster to an insurance carrier. An even larger number, 79 percent of those surveyed, are troubled by having their personal medical history sent over the Internet.

Clare DeNicola, senior vice president of network services for IVANS, says both health and property/casualty insurers have a real opportunity to educate their policyholders on the security measures they have initiated. The survey results show many consumers are not yet aware of the advanced networking technologies available today that can protect their data on the Internet, says DeNicola.

Whos Using What

Baltimore Life Insurance Co. has agreed to use the Illustractor Life Insurance and Annuity Illustration system from Deerfield, Ill., actuarial consulting firm FMSI.

HDFC Chubb General Insurance Co. has ordered X-GEN general insurance solution from Apex Technologies India, which is based in Bangalore and is a global insurance solutions provider.

West Bend Mutual Insurance Co., located in West Bend, Wis., and Middlesex Mutual Insurance Co., headquartered in Middletown, Conn., have signed contracts with Prelude Software Inc. for use of Preludes PayPilot in their check printing and reconciliation processes.

ACA Assurance, a fraternal benefit society with over 25 different insurance products, has licensed Genelco LifeWeb and Genelco Life+ from Genelco Software Solutions, the St. Louis-based division of Liberty Insurance Services Corp.

RLI Corp., based in Peoria, Ill., has implemented the Example Platform Product Suite from Duck Creek Technologies to provide Web-enabled front-end rating, underwriting, and policy management services for the RLI line of property/ casualty insurance.

Health benefits provider Humana Inc. has signed a five-year contract with Danka Business Systems to provide Danka @ the Desktop imaging equipment to Humana locations across the U.S.

HB Group Insurance Management, Ltd., has gone live with an enhanced version of ClaimsPath, the online claims communication system from Castek. The software developer also has signed a letter of intent with Kingsway Financial Services for use of the ClaimsPath product.

Reliance Standard Life Insurance has gone live with FronTier, a group administration application from Sherwood International.

CGU Life Insurance Company of America has licensed IRIS, the customized illustration system from COSS Development Group of Milwaukee.

Ohio National Financial Services has licensed nbAccelerator from Computer Sciences Corporation (CSC) for its business process management and risk assessment capabilities.

Scottsdale Insurance Company has awarded a contract to InsuritySM Inc. for the use of Insuritys Commercial Intellisys Internet solution.

Woodmen of the World/Assured Life Association has launched a new Web portal that is fully integrated with LifePRO, the insurance administration system offered by Professional Data Management Again, Indianapolis.

Conference Report

Gates Lays Out Technology Challenges

While times may be tough for the technology sector, the U.S. economy in general, and the insurance industry in particular, technology will provide answers to help weather the storm, according to Bill Gates, chairman and chief software architect for Microsoft in Redmond, Wash. Gates delivered the keynote address of the Comdex Fall 2002 technology conference in November. He believes all the scenarios for automation of business and home life that are just beginning will be commonplace by the end of what he termed the digital decade. Advances in chips, connectivity, and computing devices will enable this, he noted.

All of this is likely to impact insurers not only in providing coverage for homes and businesses, but as users of technology themselves. He feels many functions that are currently done manually will be done in digital form by 2010. Theres a lot of hard work to be done to build a foundation for that, he said, noting many technology initiatives will require literally tens of billions of dollars to be spent. This is the task were all engaged in.

Personal computing is not just sitting in front of that desktop PC, Gates continued. Thats very important, but just a piece of what well do. The magic of the chip and [advances in] software are now spreading to all kinds of devices, connecting in different ways. All of these will come together. Gates pointed out the idea of personal computing is now far broader than ever before. Systems can connect automatically, yielding greater productivity, he said.

Last year, there were a lot of highs and a lot of lows. It was a tumultuous year, a tough year, a year to test the people with long-term commitment, a year to test which innovations really meet the demanding requirements customers have in this kind of environment, said Gates. He added it will require new advances to deliver in both the dimension of improved costs and the dimension of improved capabilities. Gates characterized some technology developments as a big surprise on the positive side, pointing to what he said is continued improvement in price performance and storage capacity.

Speaking of storage, he noted, [PC hard] disks have moved from a megabyte to 10 gigabytes [in capacity]. By the end of the decade, a terabyte will be the typical storage on a personal computing device. He also cited advances in wireless technologies, helped by easy and inexpensive connections to get high-speed capabilities. Gates spoke of significant gains in server performance. Its clear now that you can buy industry-standard Intel/Windows-type servers and get performance that in the past you would have had to pay five to 10 times as much for, he noted.

However, on the more sober side, there are a number of things that have made this a tough year, Gates asserted. One negative factor, he said, is a more conservative attitude toward capital investments, particularly in IT spending, as well as the overall economic climate. Its very challenging, he said. It requires companies have the strength to see these [tech] advances through. Some of these advances, he added, will take many, many years of development.

The complexity of managing systems is still a black mark. As you get more servers and more clients, the challenge this represents is even worse, Gates said. Management software today is not systematically bringing those costs down the way it will in the future, so theres a lot more work to be done there. A final negative, said Gates, is slow broadband deployment. Yes, theres been growth in the last year, but the prices have gone up somewhat, and its not as fast moving as many, including myself, would have hoped it would be, he said.

In terms of office workflow, Gates said Microsoft has identified some of the inefficiencies that take place in the office. The recent introduction of the Tablet PC was aimed at automating and increasing efficiency where tasks like note-taking, reading, and annotation are necessary, he explained. Its gratifying that this year we had the Tablet PC launch, which has included some 15 systems, with many more coming based on that concept, he said. Ara C. Trembly

Global: Reinsurance

Insurer Takes ri3k

LondonAviva plc has embarked on a relationship with ri3k, the London-based technology provider, as a hub to transact its January 1 treaty renewal business.

Craig Patterson, director of group reinsurance operations for Aviva, says his company made the decision to use ri3k because it wanted automated tools to administer the structure of buying treaty reinsurance. Aviva, a London-based life and general insurer, is the result of the mergers of Commercial Union, General Accident, and Norwich Union, all U.K. insurers.

Patterson says his company is using ri3k because it wanted something more than a trading platform that replicates age-old industry processes. One of the key issues for us was automating the collection and cleansing of data from various countries around the world into common structures and common currencies, he says.

Alex Letts, ri3ks chief executive, says the ri3k system enables the entire treaty process from preplacement, collecting the data, to placement, to administering the contract, and moving the data between the parties. Further, ri3k creates a hub for routing the contract data and the technical accounting data between any of the counterparties in an XML format.

An Easy Tweak

As a data hub, the ri3k system brings the data in, puts it into an ACORD/XML format, and then moves it out to the recipients, Letts says. Even though the ACORD formats arent by any means universal, ri3k translates the data so that if the recipient has to tweak the data, its a relatively easy tweak, he adds. From our end, the real beauty of it is that you can have multiple systems, as long as the data is funneled through the ri3k hub, Patterson says. He notes the hub works for companies that have proprietary systems for treaty business as well as companies that dont have proprietary systems.

The ri3k hub provides a transactional administration system for companies without a proprietary system for treaty reinsurance, while it allows companies with a proprietary system to plug that system into the ri3k hub, which transmits data and information to brokers and reinsurers.

Eliminating Duplicate Efforts

Technologically speaking, the insurance and reinsurance in-dustry is well behind the rest of the financial services sector, Patterson says. He feels part of the problem is the requirement of data re-entry every time data needs to be sent from one company to another. The insurance industry needs to cut out all the duplicated efforts because the industry spends too much time on administration and not enough time in actual strategy for risk management and analysis of exposure and data, he adds. We want to handle data once, make sure its accurate, and be able to analyze it, so we can work with the broker to determine the coverage required, at which point the reinsurer can look at the data to price the exposure, he says.

In phase one of the ri3k project, Aviva will use ri3k for a number of smaller treaties for risks that require information gathering from a number of different countries for the January 1 renewals, Patterson says. The ri3k hub provides automatic risk profiles and aggregate profiles in the currencies of the countries where the treaty program is purchased, he explains. Were now collecting the data in a structured format, in a document management center, which will then allow us to collate that information and then put it on to the ri3k hub, he says. The hub allows us to appoint our broker electronically and for the broker to move that information to the market again electronically in a structured way.

The underwriter at the reinsurer can access that information by password, Patterson continues. The underwriter then does a normal analysis on that information and confirms his or her terms and commitment, such as size of line, on an electronic basis.

Phased-In Approach

Phase one will begin the online signing of risks, which will facilitate phase two of the project when cash and administration will move electronically, he says. During phase two, Aviva wants to be able to message all of our risk profile information into internal systems as well as into all stakeholders systems, i.e., brokers and reinsurers, he says. This will then achieve an end-to-end process.

The system should ultimately cut frictional costs by reducing the time it takes to analyze exposure and present the risk to the market, he says. If we present all that information to the reinsurer, then we expect that should cut the time it takes the reinsurer to analyze and provide terms on business submitted. Lisa Howard

Special Reports /

Technology Decisions, January 2003, Industry Intelligence :

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