The Providence Insurance Co. inaugurated the insurance agency system in the United States back in 1803. That's when the vessel and cargo insurer-one of the first insurance companies established in this country-decided to expand, and appointed the nation's first independent agent.

Two hundred years later, the East Providence, R.I.-based multi-regional, multi-line property/casualty insurer-known since 1820 as Providence Washington Insurance Cos.-has remained true to the independent agency system.

"I became very interested in the Internet back in 1995 when I first joined the company," says Ed Leveille, CIO of Providence Washington since 1998. At that time, the emphasis was on selling insurance directly to the public over the Internet. People predicted agents were going away, he notes.

But Providence Washington didn't buy into the "disintermediation" hype-as it was called back then. In fact, not only are independent agents the sole distribution channel for the company, they are also a focus its five-year e-commerce strategy. On a journey that originated in 1999, Providence Washington is migrating to a best-of-breed, component-based technology architecture, which hinges on ACORD XML data standards and Web services.

"In our business, the vast majority of people will continue to use independent agents," Leveille says. "So our focus is to make it efficient and easy for our agents to business with us over the Internet."

Real-time quoting and upload

Specifically, the company is implementing new technologies to deliver real-time transactional capabilities to 3,500 agents that distribute its products in 16 states. Initially, the company's efforts have been focused on processing new business. By this year, it had acquired most of the components required for policy issuance and the administration of its systems, says Leveille (see "Providence Washington's E-Commerce Toolkit, page 21).

Like other insurance companies, when Providence Washington began developing its e-commerce strategy, it was restricted by inflexible legacy systems and cumbersome manual processes, according to Craig Weber, senior analyst at Celent Communications Inc., a Boston-based research and advisory firm to the financial services industry.

"There was no connection between the quoting engine, the agency management systems used by many agents, and other downstream new business systems," Weber notes in a report titled, "Providence Washington Case Study: Managing Technology Innovation."

But by implementing business process integration software, business rules management software, an XML database, a new rating engine, online chat and other new technologies, the insurer is now providing real-time quoting for commercial lines and agency upload for homeowners and personal auto insurance.

"We developed upload for personal lines using Web services," Leveille says. That was the company's pilot for testing its new business process integration software and IVANS Transformation Station. "We wanted to start with something small," he says. "Keep it simple, get a prototype and get some education."

The company also developed a Web-based quoting engine, called CLIQit, which agents can access directly through an agency portal. Rules-based intelligence guides agents through an online interview, asking them only for the information necessary to generate a specific quote.

The automated process pre-fills data that appears in multiple places-so agents don't have to re-key it-and it fast-forwards to an underwriting decision whenever possible. If a referral is necessary, agents communicate via online chat with an underwriter.

Currently, Providence Washington is providing online quoting for new commercial business in two states. Three more states will be added soon, Leveille says. The company also is developing online quoting for renewals, cancellations and mid-term endorsements-in addition to new business-and it is integrating the quoting application with its legacy system for registration of premiums.

Big-time payoffs

"We're getting more quotes from agents than we ever did before," Leveille says. What's more, the quoting process, which used to take days or weeks, takes as little as five minutes without underwriter intervention-and perhaps 10 minutes when an underwriter gets involved in an online chat with an agent.

When online policy issuance is added next month, agents will be able to initiate a policy request and print a declarations page for an insured in 10 to 15 minutes, he says.

Ultimately, the company plans for 80% of its business to be generated by agents through self-service, Leveille says. "Our business is people-intensive. So if 80% of our business is processed by agents without involving our people, we figure we can double or triple our business with no additional staff."

The savings are "big time," he says. "We're talking many points off the expense ratio." He declined to specify the savings.

Adding or changing products, rates and forms will also become a more efficient process when the company goes into full production with the new technologies, according to Leveille.

For example, making a rate change on the old system typically takes 90 to 120 days. Using the new software, it will take only 30 days, he says. "There's a premium advantage to that-because you're collecting the premium for an extra 60 to 90 days."

Similarly, new lines of business can be added in half the time, putting the company on the street faster with new products. "We wanted to implement systems that would be easier to maintain and would enable us to put in new product lines or make changes more quickly," Leveille says.

The company also wanted to shift maintenance to business users, whenever possible, rather than going through the IT department for programming changes. Several new technologies in Providence Washington's toolkit are designed to take IT out of the loop for many routine modifications.

For example, the business process integration package from Metaserver, as well as ILOG's JRules and CSC's Rating Processor enable business users to make changes-to business flow, business rules, and rating parameters, respectively-without coding.

Leveille convinced the board and the vice presidents that it was a better strategy to invest in the future, rather than spending so much on maintaining old systems.

He also persuaded them to sign off on a continuous IT investment plan. "From an expense perspective, it's better for the company to have an almost straight-line investment strategy versus a strategy where every once in awhile you go up in a big blip and then you lay low for the next few years," he says.

Leveille's five-year plan calls for significant internal belt-tightening-by limiting the support IT would provide for end-user groups. "If you ask users what they want in their current system, they'll ask for the world," says Leveille. "If you put no constraint on that, you can literally waste all your time and not move forward at all."

This belt-tightening initiative is paying off too. In 1999, 86% of the IS budget was devoted to production support, product maintenance and infrastructure support, leaving only 14% for new technologies. By 2002, 54% of the IT budget was spent on maintenance activities and 46% was earmarked for research and development. Currently, IT is spending "the bare bones minimum" on maintenance, says Leveille.

Poised for the future

Instead, Providence Washington is spending the bulk of its IT dollars on new technologies. Next year, the company will add personal lines to its real-time quoting capability-and a billing component to its new platform. In 2005, the company will implement claims, thereby migrating the last major component from its legacy system to its Web-based, open architecture.

"In 2005, the legacy system virtually goes away," Leveille says.

Beyond that, with its applications Web-enabled and its transactions standardized on ACORD XML, the company is poised to accept XML data feeds from third-party business partners, such as Choicepoint, credit bureaus and Dun & Bradstreet.

Employees, too, will benefit, Leveille explains. "Many of our employees work on the road or from their homes. As we move to the Internet, all I have to do is get them local access, a high-speed line-which is very inexpensive these days-and they'll have access to our systems 24 by 7."

The insurance industry is on the verge of making a quantum leap forward in terms of IS efficiency through the use of ACORD XML, business process integration tools, component architectures, rule-based processing and Web services, according to Celent's Weber.

"Providence Washington's experience demonstrates how a new mindset can allow new technology tools to deliver their promised benefits without breaking the bank," he says.

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