The technology may seem a panacea to some, but for the insurance industry, there are still some unanswered questions concerning Voice over Internet Protocol (VoIP) and data convergence implementation.Donald Light, senior analyst at Boston-based Celent Communications Inc., a research and advisory firm, confirms the pensive posture of the insurance sector. "Insurance is being a cautious adopter. Visualizing the curve, the insurance industry is just now stepping up into growth," he says.

In other industries, such as automotive and aerospace, companies such as Ford and Boeing are losing the old-fashioned hard-wired PBXs, installing instead Internet Protocol-based voice and data systems.

The banking industry is also more receptive. Bank of America is replacing 150,000 handsets with data convergence technology, according to Rune Olslund, financial services market manager at Cisco, a San Jose, Calif.-based manufacturer of networking equipment.

Yet, an exhaustive search of business news and online technology-oriented Web sites reveals relatively few large insurance carriers have likewise committed to adopting large-scale integrated IP-based voice and data systems in favor of traditional hardware.

Companies heavily invested in traditional technologies may simply be in no mood to make an expensive and troublesome change. Celent's Light blames the phenomenon partly on sheer lack of interest at higher management levels.

"It's just not on their event horizon," he explains, and acknowledges there are some "yellow flags" about problems in terms of voice quality and reliability that dogged VoIP in the past. "Those questions have to be addressed," he says.

Olslund believes the wait-and-see attitude in insurance is "primarily related to the knowledge level of an insurer's internal staff."

The No. 1 reason

Olslund points to VoIP's growing popularity in other industries: Cisco, the industry leader in IP equipment, shipped nine new IP-based systems for every hard-wired PBX in the last calendar year. Those sales targeted telecom carriers, and other industries, but few insurers, he says.

Some in the industry are welcoming the potential of converged voice and data to increase efficiency and lower costs, however.

A survey conducted last year by Frost & Sullivan, a Palo Alto, Calif., research consultancy, confirms that cost savings is the No. 1 reason for companies to invest in IP telephony. Of the 176 financial and insurance company respondents, 43% were evaluating an IP migration in the next 12 months.

A few major carriers, such as CNA, Zurich, and Fireman's Fund, which contracted with AT&T to build a Virtual Private Network for the company earlier this year, have formed alliances with IP telephony vendors and service providers to upgrade their communications services.

Interest is also building at the agency level. Preston Insurance Agency, Warwick, R.I., recently installed a new converged network, which included an IP telephony system, a new data network, and a wireless solution.

"This technology is fairly new, but we knew that we had to progressively move into the future," says agency owner Bill Preston. "There are many features the new system allows us to grow into, as our business continues to develop."

The Hartford Financial Services Group Inc. is currently evaluating an IP-based system. Assistant Vice President Scott Witter, who is responsible for contact center infrastructure automation at the Hartford, Conn.-based company, explains why The Hartford decided to go forward with an IP-based solution. "It's really two-fold," he says.

More agile infrastructure

"There's a cost component that relates to the telephony service features and transfer connect charges. The other reason is because the technology is more of a business enabler. It takes us where we're heading with our contact center to form a virtual call center across the country, and it provides the ability to transfer data with the call and really take advantage of the IP backbone."

Witter's "IP backbone" means using the reach and speed of the Internet to conduct business better, faster and more accurately. With best-server routing, already in place in the call centers, VoIP will make that (routing) easier, says Witter.

"As we get into the customer segmentation concept, VoIP will enable that to be more effective. That's why we see it as the plumbing for our overall strategy," he says.

"The ability to be agile in your business" is how Olslund describes the advantage of IP-based telephony, giving the example of being able to set up an office more quickly without having to hard-wire a phone system.

"The ability to run voice and data through the same network is going to enable you to have better visibility of your system and increase manageability and reliability," Olslund says. "It also enables you to introduce product-enhancing applications that in turn introduce new ways to communicate internally with your staff and enable you to improve customer service."

Celent's Light concurs. Any employee with a desk and a phone can be an office when supported by IP-based hardware, he notes.

Witter stresses that The Hartford is not necessarily rushing headlong into implementing a full IP telephony solution. Instead, the carrier is taking a phased approach to implementing a VoIP system.

"We're in the process of getting ready to do a proof of concept and pilot," he says. "And, depending on the results, we'll be able to extend that out to our personal and commercial lines infrastructure.

Asked about a cost-benefit assessment, he stresses the trial nature of the project.

"Right now, we 're assessing the different models to see what plays to our strength-what provides us with stability."

The Hartford's trial rollout will involve a total of 3,300 people. According to Witter, the company is in the process of looking at different vendors and different configurations, but an all-out voice and data convergence project hasn't been green-lighted at The Hartford just yet.

Witter emphasizes that his project is just a trial, encompassing a small part of the entire enterprise.

"We haven't decided whether we want to install IP on the desktop and eliminate hard phones altogether. There are a lot of capabilities we have to put into place before we make a decision like that."

Technology catching up

Witter's enthusiasm for the potential of a converged IP network, and the measured approach his company is taking in implementing the technology, are emblematic both of what is driving the escalating sales of the new equipment, and the specific cost and performance concerns that might be holding some back.

Celent's Light says that the IP industry sector as a whole is well up the sharp part of the growth curve in terms of market maturity, having been driven by the improved technology, and he expects it to plateau in the next three to four years.

Light also claims the market is now large enough to be able to deliver the promised lower costs that have helped convince many to migrate.

"In terms of experience of companies that have put in VoIP, there's a reasonable set of data (to demonstrate such savings)," says Light. And the issue of an unreliable or weak signal when speaking over an Internet phone is no longer an issue at all.

Cisco's Olslund believes that VoIP voice quality has caught up with that of traditional analog service. "They are equal to hard-wired systems," he says.

The triumph of VoIP and merged data is simply a matter of time, according to sources. An Infonetics study calculates that 90% of all PBXs sold in the United States in 2009 will be IP-based.

Meanwhile, sales of IP-based telephone equipment have surpassed their analog-based counterparts for the first time in 2005.

"The days of the old PBX system are coming to an end," says Olslund. "The benefits (of converting to IP) outweigh what it's going take to make it happen."

VoIP Economics 101

Insurance Networking News talked to Donald Light, senior analyst at Boston-based Celent Communications Inc., about implementing a converged voice and data system.

What is the projected ROI on installing an IP-based voice and data system?

There are two kinds of savings that can be realized due to a converged network: network support operational savings and the more broad operational savings. When you put voice and data on a single network, you get rid of the second network. There are a lot of support and maintenance costs that are stripped out when you put everything on one network. The savings on toll and long distance charges can be substantial, depending on your business model. Those savings are real and by themselves could provide a payback-anywhere from two to four years.

How do you calculate the costs of installing a converged data network?

There are certainly standard costs. One is: When you put voice and data on the same network, you have to make sure you have enough capacity and enough redundancy to deliver voice in the quality people are accustomed to. If you wait three-tenths of a second for some data to be transmitted, it doesn't matter. If you're waiting on the phone to hear someone talk for that extra three-tenths of a second, it can ruin your day.

Is the converged data industry mature enough to gauge its performance against the claims made for it several years ago?

I think so. As far as VoIP and the technology itself, it's probably in the maturing growth phase. Regardless of industry, VoIP is probably well up the sharp part of the growth curve, but the plateau is somewhere in sight over the next two to four years. In terms of experience of companies that have implemented VoIP, regardless of industry, there's a reasonable set of data and proof points out there. In terms of insurance, there are relatively fewer proof points out there, because the industry as a whole has been slower.

How should insurers proceed in terms of fear that a merged data system could fail?

One fear people have concerns when you have voice and data on one network and the network goes down. Are some people reluctant to implement because of this? Yes. Should they be? I'd say: If you put all your eggs in one basket, watch that basket. You have only one network to protect, not two. Are there security risks? Are there failure risks? Sure. Can you build in sufficient network security and redundancy and even fail-safe fall-overs to a more conventional phone system? Depending on what kind of belt-and-suspenders approach a company wants to take, those are all available. It's not a question of whether we can eliminate risk but more a question of whether we can manage it.

Are there any other barriers to adoption of VoIP?

Some big, big companies-Bank of America, Boeing and Ford-are performing installations of hundreds of thousands of handsets. That's going to provide some comfort.

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