How can insurance carriers avoid being “leapfrogged” bycompetitors who are leveraging technology to their advantage?

Carriers are worried about being left behind by their moretechnologically active competitors, Cynthia Saccocia, insuranceresearch director for TowerGroup in Needham, Mass., said during ananalyst panel discussion here last week at the ACORD LOMA InsuranceSystems forum.

“The bar has been raised in technology,” she noted during thepanel discussion on “Strategies, Technologies, and YourFuture.”

Why haven't more insurers jumped on the updated technologybandwagon?

Matthew Josefowicz, manager of the insurance group at Celent,LLC in New York, pointed out that “the cost of modernizingtechnology is very high and may be perceived as unsupportable bymanagement.”

He also noted, however, that the anonymity of the Internetlevels the playing field for smaller insurers that might not havethe resources to modernize fully. “On the Internet, nobody knowsyou're a $20 million start-up carrier,” he said. “This is a realopportunity to erode market share from larger carriers.”

Ms. Saccocia pointed out that for smaller niche companies, “it'snot about technology; it's about the value you can provide.”

Panel moderator Denise Garth, vice president of membership andstandards for Pearl River, N.Y.-based ACORD, asked the group tocomment on the notion that “40 years of IT investments havehindered innovation” among carriers.

Ms. Saccocia noted that not every insurer had been invested inlegacy systems for 40 years. “Some are far fresher,” she said.

Stephen Forte, senior research analyst with Gartner in Stamford,Conn., said, however, that with some insurers spending “70-to-80percent” of IT budgets on maintaining legacy systems, “there's noway to compete” with larger carriers that have the financialresources to modernize.

Mr. Josefowicz said that competitive advantage in insurance issupported by two pillars–service and risk management. As afoundation, however, carriers must treat data as a strategic asset.Straight-through processing is also a must–”meaning thatinformation remains consistent and electronic throughout the valuechain.”

Ms. Saccocia added that insurers must also provide services thatreflect marketplace demands, noting that technology can influencethe way such services are delivered. “Insurers need to move from aproduct-centric focus to a service-centric focus, addressing needs,rather than just selling a product,” she stated.

On the subject of data, however, Mr. Forte questioned whetherinsurers really have an idea of what their data contains, notingthat silos and inaccuracies may make significant differences.

Ms. Saccocia disagreed, asserting that at least some insurers“are clearly on the path” toward working more effectively withtheir data.

Mr. Josefowicz said his organization's research revealed makingdistribution and e-business processes easier and faster with lesscost were among the top initiatives for 2006 among carriers.

Ms. Saccocia suggested that distribution needs to bepersonalized for different customer audiences. She noted thedifference in demographics between customers over the age of 50 and“those who were raised on Game Boy.”

Ms. Saccocia went on to say that changes within an insuranceorganization must start with the business architecture, then moveon to IT. Business models need to change to keep up with employmenttrends and technology advances. “Product is the last part of thatdialog,” she added.

Mr. Josefowicz pointed out that technology advances allowinsurers to “trim down the service group to high-value peopleproviding high-value services.” If a representative is just readinga screen while on the phone, “that person should be turned into acomputer,” he asserted.

He also saw more of a focus among carriers on service-orientedarchitecture and internal services architecture. These will enableinsurers to “solve integration problems and get systems to talk toeach other,” he said.

“You can't buy SOA,” said Ms. Saccocia. “It's a strategy.”

Mr. Forte opined that insurers have adopted a wait-and-seeattitude toward SOA, which has been around since the mid-1980s, butMs. Saccocia disagreed, asserting that many insurers are alreadyworking with SOA and “the technology is farther along than it hasever been.”

Mr. Josefowicz added that his research had found that 55 percentof insurers are using SOA in mission-critical systems. Theadvantage of the strategy, he said, is that it is “open, faster andcheaper.”

Jason, use either the quote & mug or the computer head art& quote—I guess it depends on Don

“On the Internet, nobody knows you're a $20 million start-upcarrier,” he said. “This is a real opportunity to erode marketshare from larger carriers.”

Matthew Josefowicz, Manager, Celent

With Computer Head Art

If a service representative is just reading a screen while onthe phone, “that person should be turned into a computer.”

Matthew Josefowicz, Manager, Celent