While still in its infancy in the insurance industry, Web-based business-to-business communication is gaining recognition among carriers and agents on everything from procuring goods to settling claims.When many of the rural-based agents of the Independent Insurance Agents of New Mexico needed to obtain products essential to running their businesses, they often had to travel many miles to Albuquerque to acquire such items as notepads and stationery.
Recognizing this practice as inconvenient to its members, the association struck a deal last February with Indianapolis-based office supplier Office Members Only whereby the New Mexico association's 175-member agent network could acquire products at an average discount of 20% and receive same-day delivery to their businesses.
The arrangement certainly is a welcomed perk, but there's another element of the service that's further maximizing internal efficiencies: agents equipped with an Internet connection and a Web browser can acquire products online. Suddenly, they can dispense with paperwork and other administrative headaches associated with ordering products via telephone, fax or during face-to-face meetings.
"Our association's Web site has a hyperlink to the Office Members Only site, where an agent can be issued a user name and password, connect either to our site or directly to the service's site and choose from a large catalog of products and services," says Thomas Turbett, executive director of the New Mexico agent association.
Beyond saving money
Although the cost-cutting efficiencies of e-procurement have been well documented, the tapestry of business-to-business communication on the Web transcends buying and selling.
A more compelling aspect of the concept may be Web-based electronic data interchange (EDI) technology, which enables a carrier or agent to communicate with the likes of government agencies and business affiliates.
At a time when servicing customers is absolutely essential to a carrier's success, sharing data among business partners in a timely fashion is just as critical.
In the quest to streamline this process and provide better service to customers, agents and carriers are identifying numerous Web-based programs that are making a difference in their operations.
For example, the Independent Insurance Agents of Indiana trade association recently arranged for its agents to gain access to an interactive communication/transaction system designed to help them obtain business-critical information.
The Internet-only program, called the Access Indiana Information Network, lets agents instantly research driving records of customers seeking an auto policy.
The reason for implementing the system was to enable agents-normally accustomed to having to cut through reams of bureaucratic red tape-to quickly obtain motor-vehicle records from state agencies to write auto insurance policies.
"It used to take one or two days to obtain the motor-vehicle data from the state," says Roger Ronk, executive vice president for the Indianapolis-based association. "Now, for a $50 subscription fee and the cost of an Internet connection, they can get the data in minutes. This allows them to write and issue the policy that much quicker-or before the customer can change his or her mind."
Claims management is another area where carriers are benefiting from sharing information with business associates via the Internet.
Atlantic Mutual Insurance Co., based in Madison, N.J., recently implemented a technology that enables adjusters, appraisers and other parties to import digital photos and documents from a crime or accident scene into one electronic file, to be shared on the Internet with all parties in the claims settlement process. Available on the Web at www.sceneaccess.net, the technology was developed by Scene Genesis Inc., a Rochester, N.Y.-based software technology firm, specifically for property/casualty carriers.
"We rolled the process out in a limited pilot and now have extended its use because it's sped up our claims processing immensely," says David Lawton, a project manager with Atlantic Mutual, adding that swift claims settlement keeps the company in good graces with its customers.
Business-to-business communication on the Web has garnered high marks from users, chiefly due to the dynamic that drives it: the concept replaces the informal, but frenzied, process of a buyer faxing orders and playing "phone tag" with a seller. Or, it replaces the cumbersome task in which a claims adjuster who takes a Polaroid snapshot at an accident scene must physically deliver the photograph to everyone involved in the claims-settlement loop, including car rental agencies and auto repair shops.
For more than a decade, the road to electronic communication within the insurance industry consisted of dedicated telephone lines and EDI software developed by shared networking organizations. These groups, best known by their acronyms-IVANS, RINET, LIMNET, WIN and GBS-helped insurers, agents, brokers and reinsurers lay the groundwork for electronic communications.
Insurance companies joined these networks because it proved to be more cost-effective than communicating through proprietary systems. However, a lack of coordination and connectivity among the shared networks forced many insurers to become members of all the networks that their trading partners belonged, serving to drive up their costs.
Phasing out networks
The reliability and cost-effectiveness of the Internet paved the way for carriers to phase out shared networks and move toward Web-based electronic communications.
The adoption of standards governing Extensible Markup Language (XML) has been one of the key technologies to enable Web-based communication. Within a claims settlement process, XML permits an agent to communicate with a carrier, an auto collision shop and a car rental agency in a secure, real-time Internet environment, even if the parties work off disparate data exchange platforms.
XML enables users to customize the presentation of data through the creation of markup tags that ultimately can be understood by all other operating systems.
Armed with the technology, most global businesses have identified two essential uses for electronic communications on the Web: e-procurement of goods and services and data exchange to streamline operational efficiencies.
"With a Web browser, procurement professionals are able to see price, quality and delivery information for all company purchases across all locations in one place, enabling them to negotiate supplier contracts with substantial cost savings," says Tim Schinke, vice president of e-commerce initiatives for Pleasanton, Calif.-based PeopleSoft USA.
E-commerce has essentially fostered equity in the insurance industry, notes Richard Roby, director of insurance research for TowerGroup, a Newton, Mass.-based financial service consulting firm specializing in technology.
"As early as the 1990s, the State Farms and Allstates of the world had connectivity with their largest suppliers to procure materials under the basic EDI infrastructure. The medium-size carriers didn't have the budgets to participate, and the rising costs of EDI within a shared network system exacerbated those costs. Now, a business-to-business exchange hosted by a third-party aggregator on the Internet provides mid-size carriers the economies of scale once enjoyed only by the largest carriers."
Furthermore, agents and carriers can also assume the role of seller in an online marketplace.
For example, a carrier may obtain a membership with a third-party aggregator Web site where a "reverse auction" may occur. That is, an employer declares what price he is willing to pay for an insurance package and then lets carriers vie for his business through a lowest-bid criteria.
In the long run, an Internet exchange strives to link the right buyers with the appropriate sellers the way traditional procurement methods can't.
Due to its open-ended format that juxtaposes all bids on the Web, a reverse auction instantly exposes the high-priced sellers. As a result, carriers must rethink their own pricing strategies for products and services, industry observers believe.
For example, one program, TheinsuranceXchange.com, offers business owners multiple quotes from various insurance carriers. The exchange also enables owners to keep them current with insurance developments in their respective industries. In short, the exchange apprises them about whether they've purchased the most comprehensive business insurance available, or if they've paid too much for coverage, says David Robertson, COO of the Atlanta-based company.
But, conversely, the onus is also on companies that supply the carriers to rethink their own pricing strategies online. As carriers are exposed to a wealth of vendors within an Internet exchange, some of their long-time suppliers who may not be able to compete may lose the business.
But as one industry observer points out, carriers often find that an existing suppliers could still salvage business based on criteria other than price.
"It often doesn't behoove a carrier to switch vendors just to save a few cents," the industry source states. "The element of service and understanding someone's needs still counts for something, so if an existing supplier is a shade higher on price, they may be able to compensate through other intangibles they provide, such as service."
Claim to fame
Another basic function of business-to-business e-communication involves disseminating data. For carriers, nowhere is the quick marshaling of data more important than with claims management.
GoClaims.com, based in Redwood Shores, Calif., and an operating unit of Ensera Inc., recently launched a program called EazyImage, which links carriers, agents and brokers with collision repair shops to address quick claims settlement.
The Web-based software enables those in the process to order parts and materials, post vehicle repair status, as well as provides paging and e-mail communication within one platform. Ultimately, the software enables body shop repairers to eliminate unnecessary paperwork, says Gary Hart, chief technology officer for goClaims.com.
In the context of claims settlement, the process actually begins at the accident scene. As such, a photo of the scene needs to be shot and then distributed to those in the claims process, including outside appraisers, claims adjusters, glass repair and auto body shops, towing services and car rental agencies.
Currently, about 75% of all carriers still rely on the time-consuming ritual of taking a Polaroid of damaged autos and property and then distributing them via fax or conventional mail.
When Atlantic Mutual incorporated Sceneaccess.net into its operation earlier this year, the company found that it was soon on the road to streamlining the entire claims processing aspect of its operation.
"We use a lot of outside appraisers that take photos, develop the film and deliver it to the appropriate adjuster," explains Lawton, of Atlantic Mutual. "This produced a significant time lag. Now an appraiser can use a digital camera and import an image into a laptop using a memory card that plugs into the PC. A software program called Scenemaker then enables the appraiser to transport the image to the Sceneaccess.net Web site through a file transfer protocol."
Those individuals who need to see the photo are prompted by an e-mail that includes a hyperlink to the documentation and photos at the Web site. "This eliminates the long download times for large photo files," Lawton says. "Electronic photos and documentation also include multiple backups so insurance companies no longer have to install large storage systems to maintain customer photo files." The result: same-day dissemination of data compared to what used to take a couple days.
Another carrier using Web-based EDI to shore up its claims settlement function is Los Angeles-based Farmer's Insurance Group. Farmer's is expediting claim through a branded proprietary initiative launched in June.
Known as Operation Restore, the multichannel program cost Farmer's about $100 million to build and implement, and took 17 months to roll out, says Frank Soldano, assistant vice president of claims strategic initiatives for Farmer's.
The first component of Operation Restore went live in February and the project was completed in June. The program's name was inspired by Farmer's mission to restore order to a customer's life when they file a claim, Soldano adds.
A policyholder who has been in an auto accident can log onto the carrier's Web site, www.farmersinsurance.com, and navigate to the Operation Restore area of the Web site, where they can execute all the steps in the minutes and hours immediately following an accident to expedite the recovery process.
In the context of business-to-business communication, Operation Restore enables adjusters to create an electronic claims data base and then use the Internet or a corporate extranet to access files and process a claim remotely.
With a paper claim, only one person can access data at a given time, but with an electronic file, several people can work from remote locations and access files at the same time.
Those involved in the development of Operation Restore include 40 technology service providers encompassing 70 different technologies. Using XML to facilitate communication on the Web among multiple databases and FileNet for document image management, Farmer's can share electronic claims with car rental agencies that, for example, can log onto the carrier's Web site, take the data and quickly send a replacement vehicle to the insured.
Farmer's will also post the claim data on the Internet to notify a towing company to pick up the insured's damaged vehicle, and auto repair companies to fix the damage.
"The program is transforming our claims unit from consisting of arm's length auditors to making them advocates to the consumer," Soldano says. "It's all geared to improve our customer relationship management efforts, an effort that usually is perceived as a front-end sales technique. However, CRM has to encompass the claims end of the business too."
Insurance carriers will have to determine the infrastructure that best suites their needs to expand business-to-business communication on the Web.
However, independent Web exchanges earlier this year were still struggling to attract customers and generate revenue for e-procurement activities, according to a new report by Boston-based AMR Research, an e-business marketing research firm. "Everybody and their brother wants to be in the trillion- dollar e-procurement space," says Bruce Richardson, an analyst with AMR Research, which published the report, "Evaluating The Independent Trading Exchanges."
A lack of focus by some service providers and a "me-too" stigma attached to the aggregator model dogged it considerably. This has scared off several potential users, who may be more inclined to launch proprietary ventures.
Behind the backdrop of this uncertainty, one trend that Schinke of PeopleSoft predicts will come to fruition is the development by large corporations, insurers included, of their own branded Internet marketplace sites.
These marketplaces, built and customized by a technology provider, could be hosted by the carrier and be targeted toward a carrier's customers and other affiliates-such as brokers, agents and small-businesses. Within the marketplace, carriers themselves could engage in e-commerce and also bring in other participants-affiliates, consumers and other users.
In late August, investment banking firm Credit Suisse First Boston rolled out its branded Internet marketplace where it can conduct business-to-business e-commerce transactions across multiple market sites on the Web.
Supported by PeopleSoft technology, Credit Suisse First Boston, which has U.S. headquarters in New York, hopes to save $31 million over three years through the marketplace, which was made available to its employees in London and New York in late July.
The bank plans to roll out the technology to 500 employees by the end of the year.
"The marketplace will enable our company to take full advantage of a wide range of global suppliers," Vince DeMarco, director of Credit Suisse First Boston's IT division.
Insurance carriers, Schinke states, could be the next in line to implement proprietary Internet marketplaces. Rather than paying a commission to an ASP that hosts the e-procurement marketplace, a carrier can garner the revenue instead by charging a fee to those who frequent their Web marketplace.
"The local community comes into the site and receives buying discounts," Schinke explains. "As the aggregation grows, costs continue to fall. Schools, local businesses and others can all reap savings, and in turn the carrier generates revenues rather than paying participation fees. In the business-to-business environment, you're either a participant or an owner. If you're an owner, you generate the revenue."
Live and learn
As carriers and agents move ahead, there's still many areas to address before business-to-business communication on the Web hits on all cylinders.
"The attitude of some business-to-business vendors had been, `if we build it, (buyers and sellers) will come.' That's a misguided philosophy," Schinke says.
One promising development is that many of the marginal Web exchanges have evaporated, while the survivors have taken a hard look at their focus and rededicated themselves to providing "an open platform, pure Internet applications and consulting resources to deliver on the promise of interoperability and a global infrastructure for business-to-business e-commerce," Schinke says.
Providing accountability in a business-to-business environment is essential. When it comes to e-procurement, one sticking point is transaction verification between buyer and seller. On the sale of big-ticket items, the requirement of escrow may occur. Some programs are addressing this concern.
Escrow.com Inc., based in Santa Ana, Calif., recently formed an alliance with Ariba Inc., to provide online transaction processing and escrow services for Ariba, which is a business-to-business e-commerce platform provider based in Mountain View, Calif. Ariba is using Escrow.com's TransactionPoint technology within Ariba's commerce services network.
One feature of TransactionPoint is to provide financial and other transaction-related services, while assuring that all seller parties are paid in a timely fashion, says Russell Stern, CEO of Escrow.com.
Adaptability is also paramount. Ariba in late August rolled out the latest version of its Ariba Buyer, an Internet application for the automation and management of corporate sourcing, buying and internal business processes, ranging from requisition to payment, to travel and expense.
As insurers explore business opportunities internationally, a new version of Ariba Buyer has a useful component that enables users to adapt to business partner needs. The software comes equipped with language, currency and localization features to enhance international e-commerce initiatives.
It also provides access to marketplaces, exchanges and the Ariba Commerce Services Network (Ariba CSN), enabling companies to conduct business with any trading partner worldwide.
Old fashioned way
Above all, the insurance industry is still accustomed to doing business the old fashioned way. Deals forged over a handshake or with a signed contract are tangible signals that a deal has transpired.
A transaction or data transmission over the Web has a level of uncertainty surrounding it. This is something that a conservative insurance company may not take kindly to, yet.
"Business-to-business communication on the Web is still very much in its infancy in the insurance industry," says Roby of TowerGroup. "But there are signs that activity is picking up. Even a sleepy, stodgy reinsurer like Lloyd's of London is getting into e-commerce in buying and selling risk within an Internet exchange. The carriers that lead the charge with e-commerce will not only need to have deep pockets, but the technological savvy to make it happen."
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