Core systems

As insurance carriers expand into financial services and provide multichannel access for customers, many agents are not going along with the new program.Both State Farm Mutual Automobile Insurance Co. and Allstate Insurance Co. were sued in November by their agent associations. The agent associations are claiming the carriers have breached their contracts with the agents by increasing agents' production quotas, reducing their commissions, coercing agencies to forward their phones to call centers, and selling insurance directly to customers over the Internet.

More than nine months after it was created, Wilmington, Del.-based Fusura Inc., a Web-based personal lines insurance agency formed by global insurance giants AIG, Kemper and Prudential, is finally preparing to go live.As it prepares to launch-expected to be no later than March 31-the consortium capitalizing the venture can't be accused of rolling out the program too hastily. Since its celebrated formation was revealed, Fusura has witnessed its share of tweaks and modifications-from putting a permanent executive team in place to choosing its technology platform.

Electronic bill payment and presentment (EBPP) has experienced a mixed bag of interest among consumers, with payments of insurance premiums ranking low on their online bill-payment priority list.In fact, insurance carriers, along with utilities, telecommunications and mortgage companies, are among the businesses that are lagging behind in the expansion of EBPP, according to a recent report by Stamford, Conn.-based consulting firm Gartner Inc.

Insurers can't understand the benefits of wireless technologies unless they experiment with it, as Progressive Insurance has done for the past year. At the same time, the lack of industry standards, coupled with current limits on how much data can be transmitted and received by mobile devices, limits the types of services that wireless devices can support."This is a technology that consumers are dying to use, except for claims and servicing," says Jamie Bisker, a senior insurance analyst with TowerGroup, Needham, Mass., and author of the recent report "Wireless Realities In Insurance."

When one of its Web or application servers crashes, executives at Fireman's Fund Insurance Co. may have to cope with business down-time, but they can at least eliminate one major headache-they won't have to repair it.That's because the Novato, Calif.-based property/casualty insurer inked an agreement in October that some consider a watershed event-an outsourcing pact involving an internally operated information technology division.

The insurance industry received repeated criticism for failing to develop e-business capabilities quickly enough during the dot-com frenzy. Now, it appears that insurance companies are catching up with competitors in other sectors of the financial services industry.That's a conclusion of a recent survey of 150 North American financial services organizations conducted by Chicago-based research and consulting firm Andersen (formerly Arthur Andersen).

As the financial cost of the Sept. 11 terrorist attacks on New York and Washington, D.C., continues to rise, the ramifications for insurers remains unclear. Indeed, while carriers certainly have the financial reserves to cover estimated losses, industry observers say the wounds suffered from the devastating attacks will take many months to heal."While the hit to the economy will obviously put expense pressure on many companies, I think the disaster itself will have the effect of changing company priorities," says John Hodge, chief information officer for NAC Reinsurance Corp., Stamford Conn. The company is a subsidiary of XL Capital Ltd., which estimates its losses from the attacks at $700 million (see chart).

Over the past four years, independent surveys that measure and project online insurance trends have delivered what's become a recurring diagnosis: When it comes to the functionality of their Web sites, carriers remain a step behind banks and brokerages.And while two new reports conclude that carriers have made strides in narrowing the Internet gap, the reports also highlight the industry's continued e-business shortcomings.

Life and health insurers to date have been slow to sell policies online. But within the next four years, carriers will sell $12.8 billion in life and health products on the Internet-up from $1.1 billion last year.That's the conclusion of a forecast released by IDC, a Framingham, Mass.-based technology research firm. The growth in online life and health insurance sales will be spurred by several factors, according to IDC.

Although insurers are just now wading into the Web-based small business insurance market, research indicates this approach has great potential to improve carriers' revenue streams.There are an estimated 5.7 million small businesses in the U.S. with annual revenues between $50,000 and $500,000, says Matthew Josefowicz, an analyst with New York-based Celent Communications. He is the author of a recent report, titled "Web-Enabling Small Business Insurance Policy Origination."

It began as a mail-order business in 1922, providing automobile insurance to U.S. military officers who moved often and could not get coverage from other carriers. Today, United Services Automobile Association, better known as USAA, ranks as one of the best companies in America for providing customer service.With 4.5 million customers and $62.5 billion in assets, USAA placed first as the most reputable financial services company in America in the Financial Services Reputation Quotient study conducted by Harris Interactive, American Banker (a Thomson Financial publication) and the Reputation Institute. USAA also recently received top awards in the life, auto and home insurance categories from readers of Worth magazine.

Allstate Insurance Co. has received nothing but kudos from analysts for the boldness and vision of its Good Hands Network-the name the Northbrook, Ill.-based carrier gave its integrated call center, Internet and agent sales strategy.But some agents don't like Allstate's multichannel strategy-especially the part that cost them their jobs. On August 1, 27 current and former agents filed a class-action lawsuit in federal district court in Philadelphia, charging Allstate with nine violations, including breach of contract, breach of fiduciary duty, intentional age discrimination and retaliation in violation of federal laws.

r some insurance carriers, the Year 2000 compliance aftershocks are still lingering. But one such carrier, Charlotte, N.C.-based Royal & SunAlliance USA, hopes a court ruling in July spells the last Y2K trembler it will have to absorb.A Delaware Superior Court dismissed a lawsuit filed in August 1999 by Unisys Corp. The Blue Bell, Pa.-based computer giant, which has a commercial general liability (CGL) policy through two Royal & SunAlliance co-insurers, sought to recover more than $35 million in Y2K expenses to bring its computer networks into compliance.

The "Good Hands" people want to grab a bigger share of their customers' wallets. Allstate Corp. plans on launching its long-anticipated Internet bank by September 30 with a host of retirement, savings and investment products.Initially, the Northbrook, Ill.-based company is training its 2,000 agents in California and 1,200 agents in New York to refer policyholders to the new bank, which recently received a full-service thrift charter from the Office of Thrift Supervision.

Allstate isn't the first carrier to combine insurance and virtual banking. In February 1998, Principal Mutual Life Insurance Co. opened Principal Bank, and in November 1998, State Farm Insurance Cos. launched State Farm Bank.Although both banks still limit their marketing efforts to current policyholders, they still have achieved sizable growth in the past year. Principal Bank now has 34,300 accounts and $975 million in assets. The bank also has $900 million in deposits from checking, savings and CDs, in addition to issuing some 23,000 Visa credit cards.

The myriad complexities that comprise reinsurance lines often make it difficult to conduct business via the Web, industry observers say. However, buying and selling reinsurance offline is plagued by its own deficiencies- notably excess paper processing and other accountability issues surrounding the process.Providers of independent Web-based reinsurance exchanges believe they have a more efficient process of exchanging risk globally.

At a time when U.S. companies are cutting back on health care benefits and the number of uninsured Americans continues to grow, Web-based companies are stepping up their efforts to attract individuals and small-business owners.It's estimated that 43 million Americans do not have health insurance. In targeting this untapped market, Web-based insurance companies continue to expand their products and service offerings, and are actively pursuing more partnerships with both online and offline insurance providers, financial groups, civic organizations and other businesses.

ess than a year after launching an ambitious program targeting small-business owners via the Internet, Wausau Insurance has shut down its eWausau operations.The decision was stunning, given that the company in April partnered with InsureZone to offer its products to banks and Web portals.

The Internet will continue to be a major focus of insurers' technology spending plans, according to the findings of a new global survey of insurance industry leaders.The survey, conducted by The Economist Intelligence Unit and PricewaterhouseCoopers, reveals that spending on technologies supporting e-business initiatives will increase 89% over the next three years. More than 150 leading insurance providers including carriers, agents/brokers, reinsurers, banks, broker-dealers and dotcoms, participated in the study.

Although the insurance market has proved to be a hard nut to crack for dot-com startups, that hasn't deterred new entrants from trying to gain a foothold on the Internet.One of the more recent entrants is NetInsurance, an online insurance agency that, claiming to be the first operation of its kind, offers customers the ability to comparison shop for and buy auto insurance in a single online session.