Expect Leaner, More Efficient Insurance Industry To Emerge

Orlando

The struggling economy will spur mergers and crimp insurer profits in the short term, but not far down the road there will be opportunities to achieve greater efficiency and profits, according to the head of LOMA, Robert Kerzner.

Meanwhile, it's critical that backers of standards development and implementation don't take support for their cause within the industry for granted, warned the leader of ACORD, Gregory A. Maciag.

The pair assessed the state of the market from their respective positions here last week during the annual ACORD LOMA Insurance Systems Forum.

“The world has changed pretty dramatically since we met at this time last year,” noted Mr. Kerzner, president and chief executive officer of both LOMA (formerly known as the Life Office Management Association) as well as the Life Insurance Marketing and Research Association. “The final quarter of 2008 is something none of us would want to live through again.”

He remarked that life insurance sales fell 14 percent in last year's fourth quarter, which is the worst figure reported since 1951, while the property-casualty industry's net income “fell by a whopping 96.2 percent” in 2008.

Thanks to the “financial meltdown” which continues to cripple the economy, “a transformation is underway in this business, and when the dust settles this industry is going to look extremely different,” he said.

For one, he predicted, “there are probably going to be fewer companies, as there no doubt will be consolidation down the line.”

However, he added, because of the credit market crunch, the toxic assets on the books of many carriers, the fact that some insurers are taking Troubled Asset Relief Program funds from Washington, and “the game of chicken going on” in terms of who might want to acquire which company and at what price, “the consolidation is not going to happen as quickly as some might expect.”

He predicted that “we'll see the first big deal in the next three-to-six months, and then see consolidation activity accelerate after that.”

In addition, he said health care reform will present opportunities for insurance carriers, as federal initiatives include a “major information technology component–the computerization of medical records,” an effort bolstered by the Obama administration's commitment of $17 billion from the economic stimulus package.

“Once we overcome the major concerns about privacy, this system will improve our ability to serve consumers,” he said.

Pointing out that “the current underwriting process can be frustratingly long in terms of getting necessary medical information,” he asked the audience to “imagine how much faster, more efficient and more accurate we'll be able to work if we can get that data at the touch of a button.”

He added that payment of both health and medical disability claims would also be greatly facilitated by having medical records available electronically.

“As we return to 'normal,' whatever that turns out to be,” he concluded, “IT will be the enabler of greater efficiency and productivity,” whether that involves underwriting, research, sales, claims or continuing education.

ACORD'S TAKE

Although the development and widening adoption of communication and business process standards have promoted efficiency and improved the insurance industry's bottom line, those committed to the cause cannot afford to become complacent, cautioned Mr. Maciag, ACORD's president and CEO.

“Standards don't run on electricity–they run on commitment. They don't come in a box–they come in people whose persistence makes them a success,” Mr. Maciag said.

While hailing the hard work of all those who participate in the many committees and working groups that create and help implement standards throughout the industry, Mr. Maciag reminded everyone how critical it remains to keep telling co-workers and senior management about what standards mean to a company's efficiency, productivity and profitability.

“It's not only decision-makers who matter when it comes to standards, but influencers as well,” he said. “When it comes to influencing decisions on adoption and implementation of standards, everyone's involvement is critical.”

He said an ongoing drive to educate company personnel about the importance of standards is especially important, given the “revolving door in our business,” with people leaving and entering on a regular basis. “We can't assume that everyone knows what ACORD does or how standards contribute to operational efficiency and the company's bottom line,” he said. “You must keep spreading the word.”

Mr. Maciag said the challenge is “how do we bake standards compliance into your everyday process? How do we raise awareness that without much fanfare, standards deliver a tremendous return on investment?”

One way cited by Mr. Maciag is his group's education initiative, culminating in the creation of a new designation–ACE, which stands for ACORD Certified Expert.

“Part of our goal is to create a community of ACORD experts around the world who can serve as standards advocates at their organizations and increase the rate of standards adoption,” explained Mr. Maciag.

Another is by collaborating with other industry associations–the latest being the announcement here that ACORD and the American Association of Managing General Agents have joined each other's organization.

Mr. Maciag also cited development of e-forms and the new ACORD Framework initiative to facilitate progress on standards integration.

In addition, Mr. Maciag released his second book here–”The Real-Time World: Enabled By ACORD Standards”–which, he said, can serve as “a tool to educate and stimulate discussion about the value of ACORD standards.”