This blog entry is the second of a two-part series.

In my previous blog, I asserted that insurance modernization may not matter a lot in the short term, but does matter enormously in the long run. Here’s why.

The Front Office Argument 

Other than when I go out to buy fresh vegetables and fruit or listen to really high-end audio-video speakers, I haven’t been in a brick-and-mortar store in years. Even though I am at the tail-end of the baby boomer generation, I always look for the self-service kiosk when I have to pick up a rental car. I try to avoid being served by people. I usually find that I can serve myself faster and better. And almost always, no matter what my need for information is, I find Google to be the best subject matter expert. Self-help is usually the best help.

And there are many people out there like me. Consider the “digital natives” and generations to come — like the 3-year-old children of my coworkers who unlock IPads and find Netflix and other apps on them, no matter how cleverly their parents hide them. They walk up to the TV and swipe their forefingers to the left and right and are annoyed when the TV doesn’t respond. They simply can’t understand why if they can do this on their IPads, they can’t do this on their TVs.

By the way, carriers that distribute their products through independent, exclusive or captive agents will be well-served to remember that as the owners of these agencies develop their own perpetuation plans, the future generation in these agencies is growing up the same way that my coworkers’ 3-year old children are.

Carriers that don’t ready themselves to cater to this crowd will find that they are disenfranchising not just a few picky people here and there. They will be driving away many people, along with the loyalty and premiums that they represent. Fulfill the basic expectations of these digital natives and there is a good chance to keep and reap the lifetime value of these customers. Not doing so will have its own consequences.

The Back Office Argument 

You may be able to get away with pseudo front-office modernization in the short-term without addressing the back office. Make the front office appear modern while, in the back office, you paddle as hard as the duck underneath the water.

In the long run, this will not suffice. According to CSI Market, Amazon’s revenue-per-employee is about $800,000 — about three times as much as Best Buy’s. The inefficiency in legacy brick-and-mortar chains is being attributed to the afflictions of legendary brands such as Sears and JC Penney. Operations like those of Amazon are highly automated, allowing them to do more with less people.

Inefficiencies in the back office of insurance carriers are very real. Carriers know this. More and more people are needed to do less and less in the back office. And these inefficiencies will result in lower premiums per employee, higher costs per any transaction. It is these same myriad inefficiencies that inhibit true front-office friendliness as well, just like the Lilliputians who tied down Gulliver.

I was stranded in Philadelphia recently when the airport shut down following an aborted takeoff. My airline agent had to fill out, by hand, a voucher with four or five carbon copies, and use the old credit card swipe machine to get an imprint of their “validator” to allow me to get back on another one of their own flights. They told me to guard that piece of paper with my life as otherwise they wouldn’t let me board my flight. It made me wonder if their front and back offices were communicating with a string between a couple of tin cans.

There is a lesson here. Back office modernization, elusive as it may be, does matter. You may not pay the price in the short-term, but down the road, the grim reaper will come calling. Maybe like retail, insurance carriers should start measuring premium and profits per employee, if they don’t already.

The Inevitability-of-it-All Argument

Much like an automobile that has been repaired beyond its limits, many systems at insurance carriers have been patched up for as long as possible. With advances in information technology, many carrier systems are in the same state as the old jalopy that has reached its end of life. Increasingly, as the workforce of yesteryears retires and is replaced by the workforce of tomorrow, carriers are not going to be able to find the talent to maintain these systems from 30 and 40 years ago. While no one I know has developed and achieved precise ROI, this fact is hard to dispute. This is the inevitability of it all.

If modernization is, indeed, so critical, why has change not been as dramatic as in retail? Or the travel industry?

Change in insurance is slow. Being in the risk business, the industry has always been conservative. But the race has begun. In a long-distance running competition, the whole pack is bunched together for several laps around the course. And then suddenly the bell goes off, signaling that the race is in its last laps, and you see the top few well-trained, seasoned runners simply break away. And sometimes, they outdistance the pack by half or an entire stadium lap. It is a beautiful thing to watch.

Even though carriers may appear to be bunched together in their modernization race today, the bell will go off, and a few will pull away. These few, like Amazon in retail, will set the pace and the bar. And there will be casualties like the Sears and JC Penneys of the world. (Who would have thought 15 years ago that Sears and JC Penney might one day be considered dying brands?)

Let me conclude with an old Buddhist verse.

“Think not lightly of evil, that it will not come to me. Drop by drop is the water pot filled. Likewise is one filled with evil, gathering it little by little. Think not lightly of doing good, that it will not come to me. Drop by drop is the water pot filled. Likewise is one filled with good, little by little.”

To me at least, this verse seems very apt for insurance modernization. Insurance modernization or lack of it will have its own consequences — good or bad.

Ram Sundaram is a principal of X by 2, a technology consulting firm that specializes in IT transformation projects for the insurance industry.

Readers are encouraged to respond to Ram using the “Add Your Comments” box below. He can also be reached at

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