Insurance firms that lack a cohesive vision and strategy across their entire enterprise are failing to take advantage of the bounty of newfound technological options available to them and are limiting their capacity for differentiation and growth.This message, highlighted in the report "Business Architecture: Aligning Process, Content and Data to Enhance Profitability" by TowerGroup, a Needham, Mass.-based research and consulting firm, serves as a clarion call for insurers to embrace enterprisewide initiatives now or else cede an important competitive advantage.
The insurers that will survive this competitive environment are those that leverage technology to advance their business and operations, writes Cynthia Saccocia, author of the report and research director of TowerGroup's insurance practice.
For some, it would seem self-evident that insurers-in the face of cost pressures, increasingly stringent regulations and the demand to provide real-time access to integrated data for communications, reporting and real-time processing-would embrace a strategy that streamlines processes, reduces redundancies and enhances knowledge of the overall functioning of the business.
Yet, many are resisting, partly because business executives are struggling to understand how technology advancement enables the enterprising of applications that can be shared across business lines. "It is just a philosophical challenge for them," says Saccocia. "It has been an educational process."
Some strides have been made. Small firms have shown a penchant to adopt enterprise solutions because their size enables them to purchase applications that offer end-to-end solutions and they seldom have the luxury of coupling best-of-breed solutions.
In contrast, large and mega-scale firms tend to break into component parts the different functions of an insurance process, notes Saccocia. "But with that component approach, they are still coupling it together for personal lines, commercial lines or their annuity business," she says.
Despite insurers' occasional efforts to move beyond completely fragmenting their operations, truly enterprisewide approaches are still rare in the industry. But companies need not approach enterprise integration as a grandiose task to be achieved in one fell swoop, according to Saccocia.
On the contrary. It is important that the approach to enterprise initiatives be incremental to demonstrate short-term wins with reasonable targets for return on investment, she reports. Insurers can have part of the enterprise on a shared business model and the rest in individual silos.
She encourages devising an enterprise architecture that at least shares infrastructure and data, delivery channels, customer management, risk management and resource management.
Benefits of Integration
Insurers can no longer ignore the concrete advantages to an enterprise strategy, believes Saccocia. Cutting costs is central among them, for firms can eliminate redundancies and inconsistencies in operations. And, she notes, while firms can reduce maintenance costs, enterprise solutions free up both manpower and dollars to concentrate on innovation and development.
Enterprisewide efforts can also help grow the business. In fact, if a particular line of business is stagnant, that's all the more reason for adopting the strategy, Saccocia says. "We often find that a company could be operating some areas as enterprise and others as silos. But if those businesses are not profitable, you really need to look at why they're not," she says.
"And if expenses such as maintenance are too high that is, if the technology or overhead of people to support them are too high-then you need to take a hard look at reengineering the business and then structure the technology or architect the technology to support the new business model," she adds.
Now more than ever it is an opportune time for insurers to consider enterprisewide applications, due in large part to technological factors, Saccocia believes.
The quality of vendors and their products have improved markedly, and many providers are helping insurers to move forward with their legacy environments. Today vendors are also more financially stable, they are partnering to remove headaches from juggling suppliers, and upstarts are pleased to find insurers taking greater risks on them.
"Carriers have a lot more flexibility today in their choices to buy or customize technology to transform their operations," Saccocia says.
Furthermore, business rules can now be shared and workflow processes can be more complex, while the technology that supports them has advanced.
Most insurers are using either or both Java 2 Platform, Enterprise Edition (J2EE) for developing enterprise applications as standardized modular components and Microsoft .NET for developing and integration solutions using Web services and standards such as ACORD, she explains.
The Web's explosive functionality gives insurance firms greater opportunities to develop enterprisewide applications. This offers insurers distribution partners-be they agents or brokerage firms-a single access channel. And when insurers enable their agents to generate more business, they can expect a more profitable and loyal relationship.
"When you put these services out on the Web, you can also employ new rules that allow for better data gathering, and better data often equates to profitable business being written because the requirements are clear and the processes are defined," explains Saccocia.
Overcoming Challenges
Web services and standards make a service-oriented architecture possible, she notes. Insurers are also becoming more open to enterprisewide approaches as their dedication to building systems in-house declines.
Nonetheless, going enterprisewide is not an easy task, acknowledges Saccocia. She asserts that three choke points can impinge technology's capacity to provide insurers with greater flexibility: process, data and content. To reduce operational costs, insurers must recognize how the various processes of their business are interconnected.
Indicative of the propitious moment for enterprise solutions, insurers now have access to business process management (BPM) technology that enables them to design, monitor and manage processes in a near real-time environment.
These deliver businesses what they need, according to Saccocia: processes that are open and cross-functional to support a number of disparate functions so that they can pass content and data to the rest of the organization. To name just two benefits of adopting such technology, insurers can see reduced cycle times and win more business with fewer resources.
Insurance firms also need to better tackle the tough challenge of enterprising data, which is sometimes tucked in a variety of decades-old systems.
"Once an insurance firm comes to the realization that their current technology platform is just not sturdy enough or flexible enough to support the business for the future-which doesn't necessarily mean how they want to do business in the future, but rather how customers want them to do business," she says. "Then the company will have to make difficult decisions, which could include making hefty investments to remain competitive."
Fortunately for insurers, accessing data is easier now that they can use the Web to integrate these stores and create a new data structure.
"Content is the third prong that insurers need to enterprise," says Saccocia, for it both greatly influences business processes and represents a substantial cost for insurance firms.
For instance, if insurers decide to use e-mail to communicate with agents and customers, this has a regulatory implication and affects the IT department's storage decisions. Further, insurers use reams of paper for documentation-from photographs of claims to applications and forms. Their annual growth of content volume is in double digits-and they struggle to manage and maintain that content.
Firms must have a storage and retrieval platform that is scalable, reliable, flexible and secure and that enables governing records management with a clear and consistent policy, writes Saccocia in her report, noting scalability in content is absolutely possible with today's technology.
"In light of these three potential bottlenecks, insurers must resist the silo approach because process, content and data must mesh to drive operational improvements," Saccocia adds.
Working In Unison
All of these elements must work in unison for an insurer to move from simple cost containment exercises to differentiation and growth. Insurance firms report up to a 30% improvement in efficiency by taking an enterprise approach to these variables, she reports.
Another obstacle for insurers to overcome: Business folks not in in synch with those on the IT side. The latter sometimes err by trying to compel business colleagues to accept an infrastructure or application architecture without knowing if it makes business sense.
"You need individuals coming together that have a good business understanding of the activity or transaction that occurs at any given step of the process and then articulate that for IT to find the right solution," says Saccocia.
Insurers' recipe for success in enterprise integration lies in recognizing that it is counterproductive when business units strive toward individual goals.
"Through a business module mapping exercise, business unites can pinpoint common functions in different areas of operations, which serves as the basis for a service-oriented architecture," says Saccocia. This way, a company can leverage common business modules or functions across the enterprise, which makes enterprise integration of functions, processes or operations possible.
