Microsoft and IBM want to talk about the business of insurance

Where there's a boatload of money to be had, people can come up with the most ingenious strategies and solutions to pry that money loose, no matter how much security stands between those people and their goal.

Take the late Auric Goldfinger, villain of the classic James Bond film that bears his last name. Here was a man who had designs on knocking over Fort Knox, the gold repository of the United States, which today holds more than $66 billion in gold bars and coins (by my unofficial reckoning using a $450 per ounce gold market price and a reported 147.3 million ounces held).

Goldfinger's strategy involved fatal nerve gas delivered by gorgeous female pilots, the near vertical bifurcation of 007 with an industrial strength laser, and the irradiation of the entire gold reserve with an atomic bomb (guarded by an insidious chauffeur with an odd name and lethal headgear). Now here's the evil genius part: If the gold were rendered radioactive (untouchable for 100 years), that would drive up the price, making Goldfinger's own gold holdings worth much more.

That grand plan–like many such schemes–didn't work, but such failures, real or fictional, don't deter those who see a fat pot of gold at the end of some rainbow. One such prize in today's world is the information technology budgets of the insurance industry, and the two key plotters are familiar ones–Microsoft and IBM.

According to a report from TowerGroup earlier this year, IT spending in insurance for the United States alone is expected to be $36.4 billion–and that doesn't include spending by agents, third-party administrators and other parties. It's only a little more than half of the Fort Knox holdings but apparently still worth going after.

IBM has long been a player in this industry, selling and later supporting the mainframe technology that is still in place at many insurance companies.

About two years ago, however, they began saying that they were more interested in talking about the insurance business (as opposed to why insurance companies should buy IBM products). This shift in marketing strategy paralleled the vendor's larger theme of delivering services first and products second.

As recently as May of 2004, Microsoft was still touting the advantages of its .NET technology over archrival IBM's offerings. At last year's ACORD-LOMA Insurance Systems Forum, they brought together lots of media in a lush Las Vegas hotel suite and made the case for their platform while bashing IBM.

Why the aggressive push on the insurance industry? “It's been the most profitable vertical for IBM,” said Dennis M. Maroney, insurance industry managing director for Microsoft's Financial Services Group. “It makes sense for us to move in, [too].”

Still, the Microsoft message was: “We've got superior technology”–that is, until the 2005 ACORD-LOMA meeting. In an interview with National Underwriter at that conference, Kevin Kelly, managing director of the U.S. insurance industry for Microsoft Financial Services Group, had a different message.

“We want to talk about business,” said Mr. Kelly. Although he felt Microsoft had made a strong technology case to the insurance industry, he noted that the company now wants to “refocus on business.” As part of that strategy shift, Microsoft launched its “experience Insurance” initiative, designed to improve “customer, employee and operations experience” for carriers.

Part of that initiative, said Mr. Kelly, will be to begin competing on middleware that can help insurers link legacy applications to newer systems without a complete systems overhaul. (Interestingly, that's one of the things IBM does.) Further, Microsoft wants to emphasize return-on-investment in claims processing and to focus on building agency/carrier trust.

So now we have both IBM and Microsoft looking at things from a business perspective and enabling insurers to make the most of their legacy systems. At the ACORD-LOMA conference, they were lining up their partners (other vendors who are using or complementing their technologies) and stating their business cases to the insurance industry.

Make no mistake, however, this is still about the $36 billion pot of gold at the end of the rainbow, and it is still about technology. As Microsoft's own announcement noted, it is continuing “efforts to become the preferred enterprise provider for the insurance industry.”

A battle is shaping up as these two players jockey for position. Unlike Goldfinger's nefarious plan, however, this is a welcome development. It will pump more money and energy into the insurance technology sector and help the industry improve business processes in the long run.

So let the gladiators fight and take as much gold as they can. The real winner is the insurance industry.

Senior Editor Ara C. Trembly covers technology issues. He may be reached at atrembly@nuco.com.

“A battle is shaping up as IBM and Microsoft jockey for position. It will pump more money and energy into the insurance technology sector and help the industry improve business processes in the long run.”

Ara C. Trembly

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