The insurance industry appears poised to remove the "technology laggard" label. Despite a back-to-basics management philosophy brought on by the two-year economic slump, insurance companies continue to move forward with their Internet strategies.For the third consecutive year, Internet-related categories ranked at the top of Insurance Networking News' "Best of the Newest" survey, a poll of 17 technologies rated by insurance company executives and industry experts. The panel rated each technology based on its impact on carriers' operations and its level of innovation.
Web services, arguably the hottest tech topic-and one of the most misunderstood-ranked first in this year's survey, following a third-place finish in its inaugural showing last year. Claims administration tools placed second, followed by Internet security/privacy. Rounding out the top five were Internet delivery/portals and straight-through processing.
The desire to integrate legacy systems and Internet initiatives has fueled carriers' interest in Web services. Although the two titans of technology, IBM Corp. and Microsoft Corp., have developed competing Web services platforms, their cooperation in supporting "open" standards has benefited the insurance industry.
"The long-term effect of Web services will be enormous," says Ryan Conlon, IT manager for Progressive Insurance, Mayfield Village, Ohio. "The interfaces are (written in) http and text, and these aren't conflicting with IBM's Websphere and Microsoft's .NET. Workflow and security issues still need to be worked out and that will take some time."
Bob Pachner, first vice president and CIO of Kay Group Inc., agrees that the impact of Web services has yet to be felt. "The standards battle hurts the effort, and ROI studies may determine that the old fashioned way of obtaining information may be more cost-effective than programming and integration costs required to implement Web services," he says. "But they do really cool demos!"
Nevertheless, most experts agree that Web services, unlike other new-fangled technologies that have cooled off in recent years, is the real deal.
"This seems to be the most significant technology for the insurance industry in a long time," says Jamie Bisker, research director, insurance practice, for TowerGroup, Needham, Mass.
"Web services will facilitate the most efficient use of other technologies as a potent component of a carrier's technology infrastructure. Investment in this area is a key strategy," he says.
Insurers' portal play
Internet delivery and portal development continue to be key business strategies for carriers, although revenue from Internet initiatives clearly has fallen short of early expectations. Instead, carriers are using secure networks-extranet and intranets-to extend information to agents, brokers and third parties.
"Agent/broker portals are essentially a competitive requirement in today's market," says Matthew Josefowicz, manager, insurance group, at New York-based Celent Communications Inc.
The convenience that Internet delivery and portals provide for agents, brokers and consumers is why carriers continue to invest in technologies supporting their Internet initiatives, Bisker says.
"Convenience is king, so carriers need to get their infrastructures together to support portals and Internet delivery. They also need to solicit feedback to keep users, including policyholders, agents, brokers and third-party service providers, in the loop."
Insurers will need to continually upgrade their Web delivery capabilities to retain Internet-savvy policyholders and attract new customers, says Cathy Elwood, director, corporate strategy, for Nationwide Insurance Co., Columbus, Ohio. "As existing customers become more technology-savvy, they will increasingly expect customer self-service and other capabilities," she says.
Other experts caution about placing too much emphasis on Internet development. "Past investment is hampering development of agency models to a certain degree as insurers don't want to throw away portal projects," says Kimberly Harris, research director at Gartner Inc., Stamford, Conn.
Kay Group's Pachner concurs. "From the agency perspective, numerous portals are an inconvenient way to handle business," he explains. "Each is unique, requiring passwords, special navigation, etc. While the information available is beneficial, the pain associated with obtaining it can outweigh the benefits."
"It's easier to create a portal than it is to change human behavior around portal use," adds Susan Cournoyer, principal analyst with Gartner Inc. "Portals may prove more useful for certain demographics of customers and agents with more affinity for using the Internet."
Processing prowess
Carriers' desire to improve the efficiencies of their basic processes-policy administration and handling claims-is evident in this year's survey. Technologies supporting claims administration had the highest "impact" ranking in the survey as the category placed second overall, while straight-through processing (STP) finished tied for fourth place.
"Straight-through processing may not have the same resonance that it does in other aspects of financial services, but carriers stand to gain-and some stand to lose-when public perception around the timing of insurance events is measured in minutes instead of days," says TowerGroup's Bisker.
"People like 'once and done.' We don't like unfinished things that need to sit in work queues," says Progressive's Conlon. "Doing this (STP) right will be a big winner for many companies. The problem is it's really tough!"
STP is a concept that can work with very structured processes, adds Kaye Group's Pachner.
"The problem is that insurance, even the most basic policy, is prone to the unique needs of each policyholder," he explains. "To the extent that they, or a process, can be 'put in a box' by STP, then STP can be successful. We see this as a real benefit, but a limited one at that."
Automating claims administration, on the other hand, is a strategy that can benefit all parties to an insurance transaction. "I don't believe that you can compete without complete claims automation," states David Saul, CIO for Zurich North America, Schaumburg, Ill.
Cournoyer believes carriers have to be patient when applying technology solutions to claims administration.
"Although there will be high impact and innovation from investments in claims administration tools, the key word here is time," she explains. "It will take time to evaluate and improve the claims administration process, and there is no simple quick fix to such a complex process."
Continued investment in technologies to streamline claims processes and reduce costs is essential, adds Nationwide's Ellwood.
"For property/casualty carriers in particular, claims automation tools, from core claims processing systems to components such as business process management, rules engines and electronic document management, have the potential to make a major impact on LAE (loss adjustment expense)," says Celent's Josefowicz.
A few surprises
As always, the "Best" survey yielded a few surprises. Last year, XML (extensible markup language) placed fourth. This year, it dropped to tenth.
ACORD's XML standards still have proponents, such as TowerGroup's Bisker. "As carriers seek to leverage more purchased technology components and solutions, the use of standards allows for more interoperability and reduces the potential resurgence of organic legacy systems," Bisker says.
Several participants, however, say it will take time before ACORD's XML standards truly become a "standard" across the industry. "A lot of work has gone into developing these standards, yet gaining consensus across a sector for standards generally proves to be challenging and the cautious progress with ACORD XML is no exception," says Gartner's Cournoyer.
Others are less optimistic on how ACORD XML will impact carriers' operations. "Although the ACORD standards will be used, it will be more a matter of convenience than having a significant impact on carriers' performance," Saul explains.
Another surprising result was for agency automation, which placed 11th out of 16 categories. Most carriers are working diligently to improve the information flow with agents and make it easier for independent agents to work with multiple carriers. Nevertheless, the panel sees much room for improvement.
"Carriers fail to understand the agent environment," says Kaye Group's Pachner. "They want to believe they are the only carrier in an agency. In reality an agency has numerous carriers. Pass-through to carrier sites for database and claims information from the agency Web site is starting to become a reality and eventually will succeed."
