Before the days of integrated marketing programs, independent agents or their customer service representatives picked up the phone and called customers in the hopes of retaining the business of the agency's most profitable clients.Times have changed. Today, it's too expensive and time-consuming for an agency to hunt and peck its way through a large client list looking for its most profitable customers-then conceive ways to keep them on board. And it's too expensive for agencies to have a marketing arm or customer service representatives who do anything more than sell, sell, sell.

As the needs and demands of e-business evolve, companies are faced with an emerging security threat. And it's not a new hacking technique or vulnerability in a particular technology.It's complexity-the complexity of technologies, the complexity of balancing business and security demands, and the complexity of relationships among user communities.

Over the years, financial services providers have emphasized that one key to prosperity is conducting business both faster and cheaper.But in their zeal to implement a strategy based on speed and cost-containment, many financial services providers-including insurers-watched it backfire. Rather than generating positive results, they created a series of nonintegrated applications that support separate business lines and products-a silo mentality.

Until last month, the strongest positions regarding modernization of insurance regulation have been proposals for an optional federal charter for insurance companies. But another compelling-and opposing-perspective entered the debate in August, when the Alliance of American Insurers published a report that firmly argues against federal regulation for property/casualty insurance."Optional federal chartering entails a significant risk of adverse and unexpected consequences, no matter how carefully and narrowly initial legislation is crafted," the report concludes. "The better and more prudent policy is to reject federal chartering and encourage and support further modernization of state regulation."

To many insurance carriers, back-end processing of small-business insurance through accurate underwriting has long been a source of frustration.On the front end, providing thorough servicing for demanding business policy owners can represent another challenge. In the middle, furnishing independent agents with automated tools to build small-business volume has seen its share of tribulations.

A major step in streamlining agent licensing across the states was taken in August when the National Association of Insurance Commissioners (NAIC) made the preliminary determination that at least 35 states had met the reciprocity requirements for nonresident producer licensing under the Gramm-Leach-Bliley Act (GLBA).At press time, the Kansas City, Mo.-based NAIC was expected to officially certify those states at its meeting in September in New Orleans.

Depending on the specific application, electronic networking hubs have experienced a checkered history within the insurance industry. Hubs devoted to the claims side of insurance, for example, have met with a great deal of success in that they've enabled affiliates in the claims value chain to communicate quickly and effectively in settling claims.In launching what is touted as the first electronic networking hub to serve the life reinsurance segment, Washington, D.C.-based American Council of Life Insurers (ACLI) is hoping to "revolutionize the reinsurance business process," the association states.

Ever since Gramm-Leach-Bliley passed in November 1999, momentum has been building to reform the state-based insurance regulatory system. The landmark legislation, which allows banks, insurers and brokerages to merge and compete with one another, also ordered the states to enact uniform producer licensing laws by November 2002 (see "Here Come The Feds, May 2001).Yet, although the law mandates uniform producer licensing, it essentially left the rest of insurance regulation to the states. And, according to many in the industry, the state-based system puts insurers at a disadvantage-especially when they're trying to compete nationally with banks and brokerages.

Most insurers and reinsurers espouse a belief that new business doesn't always equal good business. To most insurance providers, the honeymoon period with a new customer ends as soon as claims activity intensifies.

For years, paper-based processing for a commercial insurance policy has made it exceedingly difficult to assess risk and issue accurately priced coverage. Moreover, many insurers and reinsurers have had a hard time fully analyzing client data due to the lack of disclosure by the client.But Schaumburg, Ill.-based Zurich North America launched in February a Web-based solution-called the Business Interruption Coverage calculator-which will be an integral part of its underwriting procedure for business interruption coverage.

As two bastions of tradition, neither the legal profession nor insurance carriers eagerly jumped onto the Internet bandwagon in the late 1990s.But now, the dust of the dot-com wreck is settling, and carriers and their counsel are beginning to see where it makes sense for them to use online technology to manage legal costs and improve collaboration.

Realizing that generating new insurance volume doesn't necessarily ensure profitability-and may even suppress it-State Farm Mutual Automobile Insurance Co. began implementing a strategy to suspend writing new homeowners policies in 17 states.The Bloomington, Ill.-based insurer is also setting the wheels in motion to fully exit the New Jersey auto insurance market over the next five years. State Farm's geographic retrenchment comes on the heels of a reported $5 billion net loss incurred since 2001. The losses were marked by rapidly increasing claims costs due to an inordinately high series of natural disasters-from hailstorms to flooding.

Despite many advances in agency automation over the last few years, insurance agents are frustrated with many aspects of the technology designed to make their lives easier. This is a conclusion of a survey conducted early this year by the ACORD User Groups Information Exchange (AUGIE).Nearly 9,000 agents and customer service representatives participated in the survey. And, according to the results, not only are agencies burdened by keeping their agency management systems updated, agents also are irritated by the chore of duplicate data entry and the costs and training issues associated dealing with carriers' proprietary systems.

Over the last 18 months, State Auto Insurance Co. has been using an intranet application that provides its independent agents with Web-based access to the company's mainframe for policy rates and applications.

The Internet standards-based approach to software distribution-called Web Services-promises to greatly simplify IT integration of legacy applications. Described as a "Leggo" approach for assembling different "services" from back-office systems-such as rating a policy and submitting a claim-Web services are based on open standards, including XML (extensible markup language), SOAP (simple object access protocol), WSDL (Web services description language) and UDDI (universal description, discovery and integration). As a result, customized integration is greatly reduced.But a battle is brewing between Web services platform vendors vying for market share-in particular, between IBM Corp.'s WebSphere-which is based on the Java 2 Platform, Enterprise Edition (J2EE) platform-and Microsoft Corp.'s .NET. The classic capitalistic struggle between these two camps may make Web services more complicated than promised.

As insurers' expectations for e-commerce revenue tumbled over the past couple years, e-business spending has focused on self-service initiatives such as enterprise portals and agent extranets. But most insurers lack the infrastructure and customer understanding to maximize the return on these and other technology investments, such as customer relationship management.Therefore, insurers need to create financial services hubs: technology platforms for delivering services that span multiple systems.

Some senior insurance executives have a hard time understanding how a seemingly esoteric technology such as artificial intelligence (A.I.) could possibly be used by the insurance industry.This mental juxtaposition is ironic because the potential applications are manifold. And more importantly, the insurance industry was one of the first to widely adopt artificial intelligence technology in the form of expert underwriting systems.

Despite the slow economy and overall reductions in IT spending since 2000, U.S. insurance companies are continuing to increase their technology spending. That's according to a June report from Celent Communications, a Boston-based research and consulting firm.Budgets for 2002 are an average of 7% higher this year than last year-totaling $18 billion industrywide, according to the report, titled "IT Spending in U.S. Insurance."

Over the years, insurers have faced criticism for their lack of data integration and customer relationship management (CRM) capabilities. This deficiency took on an added dimension with the passage last October of the USA PATRIOT Act.The USA PATRIOT Act-an acronym for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism-is an anti-money-laundering law designed to prevent terrorists from setting up operations in the United States.

Even though claims service provided by property/casualty insurance carriers represents a major factor in their ability to retain customers and attract new ones, insurers are not providing the level of service that is considered acceptable to corporate customers and consumers, two new studies conclude.Moreover, even well-capitalized carriers that possess the financial stability to support quality claims service appear to be dropping the ball.