Policy adminstration

For anyone who has ever owned a car, it's an inevitable question: Continue pouring money into the old jalopy, or cut your losses and buy a shiny new model complete with six-cylinder engine, alloy wheels and keyless entry?

Unlike many insurance companies that reach a point of pain with old technology, Berkley Risk Administrators Co. LLC (BRAC) was not under duress when it decided to migrate to a new platform.

By implementing a next-generation new business process, a typical life insurer that issues 40,000 policies a year could save more than $1.3 million annually.This was one dramatic finding of a report entitled "The Evolution of Rule-Based Life Insurance Underwriting Systems," recently released by Boston-based consulting and advisory firm Celent Communications Inc.

For years, insurance executives have been striving to introduce more streamlined procedures and technologies to improve their financial management and analysis capabilities. One of the primary end goals of these efforts has been to deliver more accurate and timely reporting.From an enterprise resource planning (ERP) perspective, this goal has eluded carriers due to the massive amounts of widely dispersed source data, which often is housed in stand-alone legacy systems that lack flexibility, consistency and transparency.

When executive recruiters at Los Angeles-based Farmers Insurance Group need to fill a vacant position, posting a print version of a job opening to attract prime candidates is regarded as an option-albeit an increasingly obsolete one.Call it an evolution from a "dinosaur" methodology to a "monster" opportunity. That's because at Farmers, a host of job-recruitment Web sites-from Monster.com to Insurance-pros.net-are bringing the lion's share of new claims executives. With such a success rate, it's no surprise that the Web has stepped forward to become the predominant tool of choice to fill staffing.

When John W. Hayden went off to the Massachusetts Institute of Technology for a president's symposium on technology in 1999, a professional epiphany wasn't on his personal radar screen.The president, chairman and CEO of American Modern Insurance Group Inc., Amelia, Ohio, already had a game plan on how to retool the specialty carrier's business strategy and its information technology strategy. It called for the technology strategy to run in parallel with the business strategy.

One of the consequences of merger and acquisition activity is that insurers inherit a variety of legacy systems. And, in the case of IT systems, more isn't necessarily better. Duplicate maintenance and system support, disjointed business processes, and increased overhead expenses are just a few of the challenges compounded by multiple systems.Consequently, many insurers are searching for ways to minimize operational complexity, integrate and consolidate systems, and reduce associated costs.

After a prolonged lull in activity, consolidation in the insurance industry--marked by a new wave of proposed mergers and divestitures--appears to be gathering newfound momentum, with two major developments illustrating the potential changes that loom ahead.In late September, the board of directors of Boston-based John Hancock Financial Services Inc. and Manulife Financial Co., based in Toronto, unanimously approved a tax-free, stock-for-stock merger of the two financial services giants.

Information technology strategy plays a critical role in the success of American Modern Insurance Group Inc. (AMIG), a wholly owned subsidiary of The Midland Co., Amelia, Ohio.The provider of specialty personal lines insurance products has an average annual premium of just $450 across its book of business. So having information technology in place "so that the business can flow relatively untouched by human hands is critically important to us. There's not enough money in a $450 premium for us to have to fondle each file," says John Hayden, CEO and president of The Midland Co., and president, CEO and chairman of AMIG.

"Garbage in, garbage everywhere." That's a twist on the old adage, "garbage in, garbage out," courtesy of Firstlogic Corp., a La Crosse, Wis.-based data quality software provider. "We say, 'garbage in, garbage everywhere' because so many systems share data that bad data in one spot can easily propagate across the entire organization," says Chris Colbert, industry marketing director, at Firstlogic.Bad data can also spread across organizations, as David Jokinen discovered when J.P. Morgan Chase & Co. identified him as deceased in its systems-instead of his mother, who passed away in April 2001.

When the call arrived at PMA Insurance Group's customer contact center in Allentown, Pa., it was unlike most of the in-bound inquiries normally fielded at the sprawling facility."The agents at our contact center assist injured workers seeking claims-related indemnity or medical payment status," explains Meg Schumer, assistant vice president of call centers for the Blue Bell, Pa.-based mid-size property/casualty insurer. "But in the midst of a call, an individual informed one of our agents that he was contemplating ending his life. Our agent began to talk the individual through the crisis-basically got him to calm down-and then sought intervention from crisis counselors, who took it from there."

Historically, data management and data quality have been internal issues within an organization. But the world has changed with so much electronic data interchange occurring between business partners, says Mele Fuller, interface architect at Seattle-based Safeco Corp. "The scope of data management and data quality is much broader now than it was 20 or 30 years ago."As a result, the industry needs data standards to share data more efficiently. And ACORD XML is fast becoming the standard. "There's no question that ACORD standards are the way to share data in insurance industry," says Fuller, who sits on the P&C steering committee and serves as co-chair of the commercial lines working group for ACORD, the Pearl River, N.Y.-based nonprofit insurance standards developer.

INN: Explain why technology is a core emphasis at Countrywide Financial.

Few U.S. companies will escape the fallout from the recent financial scandals in corporate America. One outcome of the well-publicized corporate debacles is the Sarbanes-Oxley Act of 2002, requiring CEOs and CFOs of public companies to attest to the integrity of the company's financial statements.In a heavily regulated industry, such as insurance, this increased scrutiny just adds to the already daunting financial reporting burden.

A recent report by the Data Warehousing Institute claims that the annual cost of poor data quality for U.S. industries is $611 billion. This includes direct costs of analyzing and correcting data errors and indirect costs as well.For instance, when errors become exposed to customers and regulators, fines can follow and the backlash can force an avalanche of expensive changes to how an insurance company conducts its business.

With almost 60% of its homeowners insurance business consisting of coverage for homes valued at $1 million and up, Novato, Calif.-based Fireman's Fund Insurance Co. understands that appraising affluent homes is an extremely tall order.Expensive dwellings don't come equipped with run-of-the-mill furnishings. Often, such homes feature rare and exotic items ranging from Pella French doors, Italian granite countertops, premium carpeting and elaborate building materials.

Insurers are becoming insular with information technology maintenance and investment priorities. Referring to it as internal "housecleaning," Cary, N.C.-based Sapiens International Corp. states that U.S. insurers are shifting gears to emphasize internally-driven IT efficiencies as a better way to control costs.Findings from a recent survey conducted by Sapiens, a global IT solutions provider, reveal that externally focused activities, such as business process outsourcing (BPO), customer relationship management (CRM), and standards implementation-such as ACORD XML, now rank significantly lower on the IT priority scale than internal initiatives.

The economy has tempered IT spending within the insurance industry in recent years, as many carriers reigned in their project development to concentrate on essential projects. This year, spending appears to be bouncing back somewhat, according to the findings of Insurance Networking News' recent survey of 95 carriers, agents, brokers and services firms.For starters, insurers' spending on packaged applications and software development appears to be on the upswing for the remainder of 2003. Carriers have budgeted an average of $1.4 million for packaged software for 2003, up by more than 14% from what they spent in 2002, the survey reveals (See chart, page 19).

Project management software won't increase a carrier's market share or revenue streams, and it won't improve system integration. But the impact it can have on an IT department's bottom line can be as significant as the ROI claimed by some of the more trendy technology tools carriers are implementing.

Ten years ago, telecommunications costs were typically the 14th or 15th line item for insurance companies, says Johnny Podrovitz, CEO of MSS Group Inc., Castle Rock, Colo. "Now, they're the third or fourth."