Can the insurance industry learn lessons from the rise and fall of the Roman Empire?

Both were huge. Both were powerful. Both faced internal and external challenges to their ability to integrate their organizations for maximum efficiency. Rome built roads throughout its empire. The insurance industry built IT networks.

Rome failed to unite its diverse operations with all of the cultures in its empire and crumbled. However, the insurance industry can still succeed in integrating its diverse systems and linking them with its far-flung distribution system and customer base, IT experts say.

The Internet's influence

Insurers' gravitation to embracing the Internet as a key distribution and servicing channel is one of the powerful forces driving the systems integration movement, notes Andrew D. Williams, general manager of the global insurance industry practice at IBM Corp., White Plains, N.Y.

"Integration is one of the biggest issues around, maybe the key issue, for the insurance industry. E- business and the Internet are causing old ideas of business organization and operations to be broken down," he says. "Insurers are asking themselves whether or not they can really do a better job by performing all their functions in-house, or if there is greater efficiency by distributing functions outside their enterprises."

Over time, the insurance industry built a series of discrete specialized functions, from an underlying financial network of reinsurance, to the eventual payment of policyholder claims. These operational "silos" were supported by their own information systems and databases.

Many of the silos were built around IBM mainframe and midrange computers that were designed for productivity, not connectivity, Williams notes. As the industry attempts vertical integration of these functions, it has to develop systems that permit common transport of information between these functions according to common system protocols.

The Internet can provide the transport system and a set of external protocols, he says, but the challenge for the insurance industry is to develop the integrated systems that can bring the data, services and products to that system.

"In the last year or so, the industry has begun to respond to that challenge," Williams says. "Insurers have made a positive commitment to the Web, and their first step has been the attempt at developing a layer of infrastructure to allow messaging between those many components within their operations.

Cost concerns

Completing this step, however, could take years and cost millions of dollars for individual insurers, he adds.

Paul McDonnell, managing director of the information technology consulting practice of KPMG International, New York, agrees.

"There has been a significant lag in the development of an information technology architecture in the insurance industry-but the industry has been getting more and more ready to take on the work and expense needed to develop this infrastructure," he says.

Insurers usually budget about 3% of revenues for information technology, but the industry may have to double or triple its spending to come up to speed, he says.

However, in return, the industry could be getting a new series of tools for electronic commerce, customer relationship management and performance management.

These systems integration problems aren't unique to the insurance industry, notes Nina Owens, senior manager at Cap Gemini/Ernst & Young in New York.

The consulting firm's recent survey of 250 financial services company CEOs revealed that systems integration and information technology issues in general were a high priority among financial services executives, including insurance industry executives.

Among the executives surveyed, insurance industry executives were more committed to e-commerce and customer relationship management systems than their peers.

However, insurance industry respondents were less likely than their peers to invest in systems integration and other information technology.

As a group, financial services executives indicated a willingness to spend 11% to 14% of their overall budget for technology integration while insurance industry respondents were willing to spend no more than about 5% of their budget.

Insurance industry executives were also less committed than their peers to commit to enterprisewide systems architecture, middleware to link present systems, and complementary technology platforms for the development of product delivery systems, the survey indicated.

Information sharing

Philadelphia-based Cigna is one large, multiline insurer that is committed to systems integration for all the right reasons: efficiency, cross-silo product development and electronic commerce.

The insurer first witnessed the power of online data access in its retirement services, responding to demands from employers and retirement plan participants for more frequent 401(k) and cash balance plan valuations and greater control over investment options (see page 27). The retirement services division expanded information access first to employers, then to employees and eventually brokers and other service providers.

The experience demonstrated what could be a powerful marketing opportunity that could extend across the company, says David Burlis, senior vice president of technology. What worked for retirement services could easily work for marketing life insurance, long-term disability, health insurance and related coverages.

The company perceived that data integration within its business operations could help extend product marketing and take advantage of the company's existing customer base. The external online delivery system could create new underwriting and product delivery efficiency as well as build additional customer self-service features.

Cigna has been developing online initiatives for three years, Burlis says, but the base of the initiatives is a new common information architecture that upon completion will support retrieval of strategic data across all business units.

The new architecture will employ IBM MQ-series messaging to create an interface that will provide for information queries across the company's diverse systems. Most information technology experts refer to these older databases as "legacy systems"-mainframe computers installed at great expense more than 10 years ago and now difficult to replace because they perform well at their designated tasks, even though they are not integrated.

"I call them heritage systems," Burlis says. "They still perform the functions for which they were created and are still performing well, but if we are going to take the next steps that systems integration provides, we need better access to the data they hold."

Burlis says that when the new infrastructure is complete, the company will not only have a better, more consistent platform for cross-unit marketing and online service, but better data for performance metrics and customer service evaluation.

RLI Insurance Co. in Peoria, Ill., is also assessing the future of its legacy systems. In 1998, the insurer re-evaluated its IBM AS/400 data system, looking to improve internal efficiency, says systems vice president Piyush Singh.

Improving efficiencies

In March 1999, the insurer rolled out a new desktop graphical user interface for its 110 account administrators, which gave the administrators greater access to coverage and claims information. The administrators provide customer service to independent agents that sell RLI personal umbrella and other insurance products.

That was just the first generation of integration, Singh notes, and it was successful in improving efficiency and reducing communication costs for the administrators. The next generation of integration was strategic as the company used its new interface to access and analyze information to develop new marketing initiatives.

The third generation arrives this year. RLI is working with Seagull, an Atlanta-based e-commerce consulting company, to Web-enable its data access for agents, eliminating many of the usual queries to the administrators and providing online access to product rating.

This latest step will use Seagull's Transidiom middleware with XML Internet protocols and a Java- driven rating function on the company Web site.

Internal systems integration isn't just an issue for large insurance companies. Large agents, brokers, managing general agencies and underwriting managers share the problem-whenever multiple operations have built separate data centers.

Burns & Willcox, a Farmington Hills, Mich.-based MGA, develops specialty coverages for niche industries served by independent agents around the country. Until last year, Burns & Willcox had been lagging behind in application of new systems. The company in fact was employing DOS-based systems for some of its applications.

Now, the MGA is hustling to catch up by integrating three separate systems and 30 separate databases-in anticipation of the development of Web-based systems, says Nancy Cheladyn, director of training and product manager for new system technology at Burns & Willcox.

"We had old systems using old languages, performing old functions," she says. "Now, our biggest challenge is integrating and updating these systems and taking our applications to the Web. By next year, we would like our agents to be able to dial in to the Internet, submit applications and obtain rates for coverage."

But first, the MGA needs a single interface for its various databases, she says. The company is currently evaluating middleware products from 18 vendors and expects to complete data conversion for 600 products offered in 28 states by June 1, 2001.

Slowly but surely

Most insurance companies are exploring Web-enabled marketing and underwriting, but so far most are beginning slowly with discrete lines of coverage that have simple underwriting processes: term life insurance, small business packages and surety bonds.

In many cases, insurers have elected to develop their Internet initiatives within their business operating units rather than integrate internally first. It's a logical first step, after internal integration, says Brad Murphy, chief executive officer of Digital-ESP, an electronic commerce consulting company in Raleigh, N.C.

However, it may not be the most efficient step, he says. "You can create online systems within company silos-business units-but the operations will be rigid. When you append the issue of integration to the process, you are asking a lot. Rigid systems under stress tend to break," he says.

Hartford Life in Simsbury, Conn., a division of Hartford Financial Services Group, began its external integration with two Web-enabled systems that enable agents and commercial customers to have access to data that was previously off limits in legacy systems.

In July, the company launched Producer View and Employer View, two secure Internet access interfaces that enable external users to administer their own coverage activities. Producer View gives agents access to commission information, payment and billing status, a reference library of product information and e-mail contact to underwriters.

Employer View enables human resource executives and employee benefit managers to access case information, including coverage, rates and billing information, medical underwriting status, claims status and reference information.

Ann Stelmat, vice president and director of benefits technology solutions in the group benefits division, says the two products are just the first of several initiatives to bring the division into the world of e-business.

In March 1999, another division of Hartford Financial launched to quote, issue and modify surety and fidelity bonds over the Internet, directly from a secure Web site. More than 500 Hartford agents now use the service to automate bond processing and expedite issuance, says Bob Post, senior vice president of Hartford Fidelity & Bonding.

Hartford agents access the service, at, which includes an extensive library of more than 2,000 fidelity and surety forms that can be filled out and printed as needed by agents- eliminating paper files and individual state manuals.

After entering a password issued by the company, agents are guided through a series of screens that require a minimum amount of agency and account information.As agents enter data, the system pre-fills many areas of the forms based on an individual agency database.

Once the data is complete, the system provides instant quotes, issues the bond and reports the sale back to Hartford Fidelity & Bonding under the agency's account.

"The process is very fast," Post says. "You can quote surety and fidelity premiums to your clients while you have them on the phone or when you're in their office. You can process a transaction in just minutes. And since this is an Internet-based system, it can be used anytime, anyplace."

The service also supports endorsement, cancellation and reinstatement transactions and includes a direct electronic-mail connection to the agency's bond underwriter. The system also processes renewals automatically-another time and labor saving step, according to Post.

Outside assistance

Insurers, MGAs and underwriting managers that have their internal systems up to speed have another alternative for taking the next step to external Web-based operations.

Application Service Providers (ASPs), Internet technology companies that build multi-purpose e- commerce infrastructures, can bring underwriters online in a few months or less if the insurance providers can comply with current data standards.

WideLines LLC, a New York-based insurance e-commerce company plans to function as a multi- company ASP, enabling agents and brokers to submit risks to participating insurers, MGAs and underwriting managers.

Launched in October, the company will use Extensible Markup Language (XML) to receive submission information from agents and brokers and relay the information to participating underwriters directly into their internal underwriting processing systems.

XML enables e-commerce companies to accept information in a standard form and tag the components of the information so that they can be read by diverse systems, says Adam Pelzman, Widelines' CEO.

Agents will be able to enter risk information into a standard online form that will capture the relevant information in XML. The data can then be transmitted into underwriting systems of participating insurers who can integrate the information into their own submission forms.

WideLines may also serve as an ASP to individual insurers and underwriters by building proprietary Web sites that can be used to accept submissions from designated agents and brokers, Pelzman says

The company says it can bring underwriters online in as little as four weeks.

What's next?

What's the next step for the insurance industry once its diverse systems are fully integrated and extended throughout the Internet? Look to market forces for direction.

"Ultimately, the insurance buyer will determine the challenges of the future," says IBM's Williams. "You can already see in the commercial insurance market that risk managers are demanding greater access to information, greater control over their own finances and more control over the claims management and settlement process.

"This is just the beginning."

Len Strazewski is a freelance writer based in Chicago.

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