Insurance executives apparently are unfazed by the dot-com meltdown of 2001. Business-to-business e-commerce clearly dominates the IT efforts of insurance carriers as they seek to increase online product delivery and data exchange with business partners, according to the findings of a recent survey of 73 carriers, agents and brokers conducted by Insurance Networking.
Nearly two-thirds of insurance companies (63%) that responded to the survey, conducted in May, are in the midst of building e-business systems to link with partners. In addition, almost half (49%) of carrier respondents have consumer-facing e-commerce applications underway.
And while IT and e-commerce spending may have slowed down in many sectors of the economy, the survey reveals that spending continues to grow dramatically within the insurance industry.
Freed up from the Y2K work that engulfed many carriers' IT departments, companies are proceeding rapidly into new e-business ventures.
Frank Raasch, network manager for Minneapolis-based Farmers Home Insurance Co., is immersed in his company's efforts to reach business partners online. His company is in the midst of implementing an online policy package that will enable agents to sign on new business and make changes in policies over the Web.
Following the company's Y2K efforts, the IT staff embarked on an effort to travel and meet with agents to determine what type of input system they required. "We've been able to do more development because of extra resources now," Raasch says.
Much work to do
Although a majority of carriers are actively implementing technologies supporting e-commerce initiatives, most agencies and brokers are ignoring this trend.
Only 32% of brokers and agents responding to the survey have any business-to-business e-commerce deployments underway. Also, 40% are concentrating on building their own internal relational database management systems.
IT executives for carriers and agencies alike are wrestling with ways to make new systems fit better into current IT architectures. Echoing the views of many, one IT director responding to the survey cited the need for "enterprise application integration" (EAI) software that has interfaces tailored to common legacy environments.
Another respondent held out hope, however, that the move to Internet standards will increase capabilities across the board. Applications "must be able to integrate with other applications using independent standards," he said. "More modular components like Web services would allow us to use only those components we need."
However, as companies move to e-business environments, they require a wide array of new skills, such as XML, Java and component-based development. Farmers Home, for example, has been addressing this issue by moving the skills of mainframe and mid-range system developers to e-commerce.
New software packages have aided this effort greatly. For example, Raasch gives high marks to the improved development interfaces vendors have been adding to their systems. "There are a lot of graphical interfaces for the development side," he says. "It's making it easy to get our legacy people trained on newer languages."
Deployment of analytical tools that run against databases and data warehouses is also a top priority for many carriers, the survey also finds. Fifty-seven percent of carrier respondents are implementing systems that help them leverage and understand their customer data.
Furthermore, carriers' overall spending for packaged software is increasing dramatically. The survey reveals that carriers have budgeted an average of $1.3 million for packaged software this year, up more than 58% over spending in 2000. Spending on internal software development will remain fairly stable, at about $3.2 million.
Insurance agencies and brokers also are dramatically ratcheting up their IT spending. These firms are more than doubling their budgets for packaged software, to an average of $120,600 for this year.
One reason why carriers continue to spend heavily on internal software development is the belief that packaged solutions don't provide the functionality that carriers are seeking. William Durling, manager of reinsurance accounting for Chicago-based CNA Insurance, says most applications fail to address functionality specific to the reinsurance function. His department is currently deploying a new release of its reinsurance systems package, which dramatically improves its capabilities.
"It's a fairly dramatic undertaking, because they're trying to implement automated attachment, and in our world, that's pretty tough," he says.
Durling claims that he has yet to see a system that can robustly handle all three areas of reinsurance-excess of loss, quota share and facultative.
Even the best products require data to be imported and exported, without retaining the interrelations between the various types of insurance.
Although IBM Corp. is recognized as the largest supplier of mainframe systems in the industry, Microsoft Corp.'s platforms and applications pervade all areas of insurance companies-and have become critical to both administrative and sales operations.
David Behlmer, business development manager at AIG Insurance, says he uses many Microsoft programs including Outlook, Word, Excel, PowerPoint and Internet Explorer. With Explorer, he accesses an intranet-the Exeutive Management Information Service-for expense reporting and lead-tracking.
AIG also uses the Internet as a sales device, which employs online application filing and quote generation through a custom-built program.
Some insurance executives, however, are anxious to move to both Microsoft-based and Internet-based systems. "Our customer service representatives want Windows-based programs that are easy to use and are Internet ready," stated one survey respondent. "On insurance software, the key is to provide one-time entry instead of entering into a quote system, then re-entering it into another system."
Joseph McKendrick is a business writer and independent technology consultant based in Doylestown, Pa.
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