A lack of market differentiators in the insurance realm makes iteasier for individuals to switch companies without many materialchanges in service. Other than cost, customer service and fastprocessing are the prime differentiators that can make thedifference between solid customer retention or an outpouring ofcustomer attrition. IT departments that commit resources toproactive improvements of user experience processes give theirbusinesses a leading competitive edge.

Although the industry has seen gains in moving away from legacysystems, the pace of change remains slow. Typically, insurance isan industry that carefully weighs positive and negatives beforeinstituting change, especially when it comes to IT vendors.

Insurers need to continue the modernization trend to not onlyimprove the end user experience, but also to satisfy a demandingagent network. With agents able to switch insurers without manyobstacles, agent retention can be aided by ensuring streamlinedprocesses.

For insurance IT departments, the lowering of operational costsremains a priority. In a recent Forrester survey titled TechOpportunities in North American Insurance IT Firms, industryexecutives were asked “What are your firm’s three most importantcorporate business priorities over the next 12 months.” The numberone priority out of eleven possibilities, selected by 59 percent ofrespondents, was to lower the firm’s overall operating costs.Growing overall company revenue was chosen by 53 percent andacquiring and retaining customers was at 43 percent.

According to Forrester nearly 30 percent of insurance industryrespondents predict 2011 will be “somewhat” or “very good.” On theface, perhaps not too impressive of numbers, until compared to lastyear’s nine percent figure. This cautious optimism reflects aperceived ending of the recession as well as pressure to grow thebusiness through improved customer retention and attraction.

The IT DepartmentChallenge

According to the Forrester report, 74 percent of technicalissues at insurers are found and noted by customers and users, notthe IT department. The report further states it takes up to sixhelp desk interactions between multiple individuals or departmentsin order to identify the owner of the problem and then start theprocess of resolving it.

This can unfortunately evolve into a blame storming sessionwhere IT issues are looked at from a silo with everyone placingblame. It becomes a very expensive process to resolve aproblem. This impacts the insurance provider in multiple waysincluding: escalating support costs, reduced productivity and poorservice to customers. Even more insidious is that most of ITtalent gets pulled into fixing problems instead of working ondeveloping new services to attract new business. As such, ITis stuck fixing the business instead of helping grow thebusiness.

Insurance processes and their underlying IT infrastructure canbe complex utilizing service oriented architecture (SOA), messaging middleware and multi-tier transactions. In a claimsprocessing application, there are multiple transactions including acredit bureau check, age lookups, or rate checks. Tracking thelifecycle of an individual transaction in real-time through themiddleware running in both distributed and mainframe environmentsis key to managing risk and avoiding business process disruption.IT departments that can’t provide deep visibility into the processrisk process failures - an expensive and business impactfulproposition. This lack of visibility is often exacerbated byshrinking IT budgets, as departments are consistently asked toperform more tasks with no increase in staff or equipmentcapital.

Insurance IT groups do have monitoring tools, but they simplycannot handle the complexity of transactions that span IT silos andtherefore are unable to discover actionable root causes. IT oftendoes a less than optimal job of recognizing problems before theyresult in user impact and business process disruption. There aretoo many specialists in IT, who work on their own set oftechnology, without a broader view of the overall business processand how it should be optimized.

How BTM Can Help

According to Forrester, nearly 40 percent of insurance firmspredict demand for business analysts will increase by between fiveand 10 percent. How does this relate to IT? It’s all aboutalignment with business objectives. IT departments can relaytechnical answers, but often lack context in the business problemsthat need to be solved. This lack of understanding is a realhindrance when managing complex systems with multiplestakeholders. In fact, the InformationTechnology Infrastructure Library (ITIL) v3’s vision of helpingin the effort to integrate IT with the business is much morepowerful than the prior directives to help align IT with thebusiness. BTM can help leverage processes and technology tomake the goals of IT and the goals of the business one and thesame. It can provide businesses with the ability tounderstand the services that depend on the ITinfrastructure.

Enabling IT to be a proactive entity that actively seeks andfinds mission critical glitches will result in operational (OpEx)savings. Additionally, less time spent on issue identificationmeans more resources for the CIO’s other projects that can growbusiness including innovative types of policies focused on newconstituencies, CRM and streamlining the end user’s application orclaim experience.

A remedy for reactive troubleshooting is business transactionmanagement (BTM), a system to monitor business processes comprisedof applications, the transactions they invoke and the middlewarethat interconnects them for patterns that identify imminentfailures. The software needs to be able to monitor increasinglycomplex systems made of many composite application parts that spanthe distributed, mainframe and cloud tiers. These systems arethemselves dependent on other complex processes that are prone tofailure, including networks, storage, security, firewalls and eventhe electrical power grid – any of which could cascade into aserious business impacting problem.

BTM solutions give true deep visibility into transactions fromthe business perspective. Customer satisfaction and the visibilityprovided by BTM are intertwined. Once middleware and relatedprocesses begin to conflict and slow down, end users experiencesession time outs related to new application versions orscalability problems. IT departments need visibility to see thesebottlenecks to better serve both internal agents and customers.

BTM enables real-time visibility into a variety of insurancetransactions including; claim processing, underwriting, quotes,self-service portals, CRM or other contact management systems,agency portals and interactions.

Additional benefits of robust BTM systems:

• Historical data is easily accessible for sharing with auditorsand compliance officers. According to Forrester, nearly threefourths of survey respondents indicate defined strategies forcompliance and managing risk were top priorities.

• The BTM process itself creates valuable assessments of both theperformance of the application or claim process, and also data onthe end-user experience. CIOs and other IT heads need such databefore embarking on further modernization from legacy systems orthe introduction of new middleware.

• BTM strips the insurer’s processes of complexity, improvingefficiency and allowing the creation of new data that can be usedto correlate business process speed to revenue and other businessperformance metrics.

To begin the BTM process, the software first needs to clearlydefine normal behavioral benchmarks. BTM systems can use acombination of complex event processing (CEP) with policies todetermine normal or abnormal behaviors compared to the business’expected results

Establishing the “normal” first involves establishing a baseline of user-defined samples for certain sets of key performanceindicators. Computation of statistical indicators then followswhich measure rate of change, momentum, exponentially movingaverages and other analytics. The system then compares the newlymade samples to the continuously learning base line to understandif there is a deviation from normal behavior and determine if thiswill have business impact

A BTM system needs several steps to beginproactively detecting abnormal processes:

• Business processes and the application, transactions andmiddleware that comprise them must be automatically discovered andcataloged, and measured against service level agreements(SLAs).

• CEP helps detail the meaningful events and establishesnormal/abnormal patterns.

• State modeling entails simply comparing what is observedagainst the actual desired outcome, which helps find deviationsfrom what the user expects.

• The ability to statistically analyze every key performanceindicator including deviation, momentum, advance and decline ratiosand other similar data.

Implementation of sound BTM processes can proactively addressproblems before they result in the stoppage of business processes.A complete shutdown of service will spur customer attrition andrelated fallout from board members, investors, and otherstakeholders.

An effective BTM solution should monitor transactions andinterrelated middleware to proactively find process issues. Inaddition by leveraging CEP it can prevent the impact of a problemvia the automated dynamic invocation of business rules

So what’s the big picture result? Implementation of BTM willresult in lessened mean times to resolve problems, and greatlyreduce the time between system failures, thus, freeing up ITresources to help build the business.

Outlook Changes for 2011:

According to a Forrester poll of insurance IT managers, nearly30 percent expected an increase in IT spending of five to 10percent in 2011, and another five percent forecast a spendingincrease of more than 10 percent. These budget projections show asense of optimism and increasingly pressure for the business togrow revenue. Over half of the respondents to the survey stated agrowth in revenue was a top three priority for their firm.

Lowered costs through operational efficiencies will always be apriority for insurance IT management. However, saving money isn’tstrategy, it’s a tactic. No insurer can claim saving moneyinternally is a competitive differentiator. Saving money willremain the number one priority, but 2011 should see a focus onother initiatives including growing revenue and improved customersatisfaction as companies begin to focus on growth instead ofrecession-induced survival. The industry should also see the riseof social media and mobile device services for claims submittalsand processing. These new developments will follow the IT rule ofthumb that dictates the easier a process is to use, the morecomplex it is to develop.

Insurance company IT departments can meet the challenge oflowered operational costs through forward thinking strategiesincluding business transaction management. Additionally, theproactive identification and fixing of application and claimsprocesses can be a direct driver of customer retention andacquisition.