While the downturn in the economy has slowed strategic IT spending across financial services, insurance companies that have committed to new customer relationship management (CRM) strategies have not slammed on the brakes. But they are proceeding with caution, according to Meridien Research Inc., Newton, Mass.In a report titled "Insurance Client-Centric Strategies: Reach for the Stars with Service," Meridien highlights insurers that have launched ambitious CRM projects, including an Australian P&C direct underwriter.

HNC is widely recognized as a leading developer of analytic and decision-management tools. But are carriers ready to turn their important underwriting and claims decisions over to machines?The similarities between fighting terrorism and combating insurance or credit card fraud are not very obvious. However, the Bush Administration's Homeland Security initiative is considering using some of the same technology that's now being applied to identify fraudulent transactions for more than 300 million credit cards worldwide, and by nine of the 10 largest insurance companies.

In an unusual move, Allstate Insurance Co. took the offense by filing counterclaims against agents who filed a lawsuit against the carrier last August. The agents sued the Northbrook, Ill.-based carrier for age discrimination and violation of federal civil rights laws they claim occurred when Allstate terminated them in June 2000 (see September 2001, page 8).Allstate filed its counterclaims against the agents in March in U.S. District Court in Philadelphia-charging the agents with unjust enrichment, fraud, negligent misrepresentation, and breach of duty of good faith and fair dealing. Allstate is requesting compensatory, punitive and other damages in an amount to be determined by a jury.

After spending the past several years sitting on the sidelines, mid-size insurance companies are poised to break out of their IT spending inertia.In a report titled "Technology Market Snapshot: Mid-Size Insurance Companies," Boston-based Celent Communications Inc. estimates that mid-size insurers-those with direct written premiums between $100 million and $1 billion-will spend $1.1 billion on new technology projects over the next three to five years, primarily on Web-enabled policy administration systems and agent extranets.

The stories are disconcerting. A 32-year-old secretary who always pays her premiums on time receives a renewal notice from her insurer that her rates are being raised 46% due to her credit. She discovers that her ex-husband's bankruptcy is to blame.A 65-year-old Hispanic-American man who has filed only one insurance claim in 26 years is told by his agent that his premiums are increasing 25%. Convinced that his carrier has discriminated against him, he and several other clients of the same agency file a class-action lawsuit.

The insurance industry has been noticeably quiet about its use of insurance scoring over the past few years. And its silence has raised the ire of consumers and agents who suspect insurers are using the arcane methodology to sneak around state laws that prohibit them from discriminating against minorities and people with lower incomes.In November, several people filed a lawsuit in U.S. District Court, Western District of Texas, San Antonio Division, against Allstate Insurance Co., accusing the carrier of using credit scoring to replace geographic redlining, which was forbidden years ago.

Proponents of federal insurance regulation have moved one step further toward their goal. Two bills have been introduced in Congress that would establish a new federal agency to charter insurance companies choosing to bypass the cumbersome state-by-state system.In December, U.S. Senator Charles Schumer (D-N.Y.) proposed the National Insurance Chartering and Supervision Act. Then, in February, U.S. Representative John LaFalce (D-N.Y.) introduced the Insurance Industry Modernization and Consumer Protection Act. Both bills respond to lobbying from banking and insurance groups that want a simplified regulatory structure for licensing insurance companies.

Carriers and agents have invested a significant amount of capital toward electronic interface initiatives that enable the two parties to improve their data-exchange efficiencies and overall operational competencies.But as they carry this out, consumers have been neglected, to the extent that many "lack faith in the quality of online customer service," says Madelyn Flannagan, vice president of education and research for Alexandria, Va.-based Independent Insurance Agents of America (IIAA).

The surety bond business has long been plagued by razor-thin profit margins, with many providers satisfied just to break even on the issuance of a new product.Most surety bond issuers therefore understand that success hinges on robust volume. But as providers strive to generate greater sales, they're confronted with a troubling reality: processing surety bonds, which are contractual agreements guaranteeing a certain behavior or fulfillment of an obligation, can be labor-intensive.

Last year was viewed as a coming out party for Enterprise Application Integration (EAI)-related investments in the insurance industry. A larger coalition of carriers made a commitment in 2001 to identify the role that EAI-and within it XML-plays within the context of their operations.Financial services firms spent more than $4 billion on EAI-related hardware, software or other services in 2001, and this year projections are they will spend almost $6 billion. By 2006, EAI expenditures will reach upwards of $12 billion, reports Newton, Mass.-based Meridien Research Inc.

The Internet has been around less than a decade, and already it has proved to be the quintessential double-edged sword-a potent weapon as well as a useful tool. The Melissa virus unleashed in 1999 cost companies as much as $385 million, followed shortly after by the Love Bug in 2000, which infected more than 10 million systems and cost businesses an estimated $10 billion.

The hardened insurance market, costly incidents of cyber crime, and a new ISO Electronic Data Liability endorsement, which provides clear limitations for cyber risks under its Commercial General Liability standard-are all factors driving commercial insurers to reevaluate their business liability coverage. And many of them are beginning to separate cyber coverage from commercial general liability coverage."You're clearly starting to see traditional insurance policies getting much clearer on their intent around cyber exposures," says Jon Farber, assistant vice president of global technology underwriting at St. Paul Cos. The St. Paul-based insurer is one of several commercial insurers offering cyber insurance. Others include Zurich North America, AIG, Chubb, and Lloyd's of London.

When Congress passed the Health Insurance Portability and Accountability Act (HIPAA) in 1996, one of its major objectives was to reduce health care costs by simplifying administrative and financial transactions across the industry. At that time, national health spending was heading toward the $1 trillion mark annually, and studies proclaimed that "administrative simplification" could save anywhere from $40 billion to $70 billion per year.

Virtually no payers in a HIPAA readiness survey conducted in December by Gartner Inc., Stamford, Conn., indicated they had completed their selection of technology tools to comply with the Health Insurance Portability and Accountability Act.But insurance companies are implementing privacy and security tools for their Web-based applications, and these tools will factor into their HIPAA privacy and security assessments.

Security isn't a new topic in business. Many years ago, businesses were concerned primarily with physically securing information within their facilities. We managed our companies' critical information on a "need-to-know" basis-if you needed to know, then the keeper of the information would share the information with you.With the advent of e-commerce and networked computers comes the added need to secure these networks. Businesses, including insurers, want to facilitate the sharing of relevant data while protecting proprietary and confidential data. And, of course, the need-to-know rule still applies.

Environmentalists should be happy about the new document scanning and imaging system at Prudential Group Insurance-because it's saving a lot of trees. The insurer's disability insurance customers should be pleased too-because it's enabling the company to process their claims more quickly.What had been a manual, paper-intensive process of receiving disability claim documents via fax machine or mail has been replaced by a nearly paperless operation.

Insurance CIOs report that the emerging mix of legacy and Web systems in their enterprises creates a set of integration challenges that dominate their list of IT priorities. Not only are these integration challenges technically demanding, they're becoming increasingly critical to the business of insurance.Spending on enterprise application integration (EAI) in the insurance sector reflects growing levels of commitment to achieve legacy-to-Web integration. Gartner Dataquest forecasts that worldwide spending on EAI-related services in the insurance sector is poised to grow from $654 million in 2000 to more than $1.7 billion in 2005.

The outsourcing of information technology is proving to be popular with carriers these days, reversing the industry's historical apprehension of working with third parties. But experts caution that time will tell how widespread the concept becomes.In January, PacifiCare Health Systems Inc. became the latest insurer to chart this course by completing a 10-year, $1.2 billion venture with Armonk, N.Y.-based IBM Corp. and Boston-based Keane Inc.

Insurers have invested significant amounts of capital on technology based on the belief that those investments will improve their top- and bottom-line performance. However, new research indicates that carriers are experiencing mixed results to date and they're seeking refined metrics to measure how technology is impacting their operations.Those are some of the conclusions of a recent survey of 248 North American financial services firms conducted by Tillinghast-Towers Perrin. The survey is the second in a series of industry studies conducted by the management and actuarial consulting firm intended to learn how new technologies are impacting carriers' performance, and how carriers are measuring the success of IT implementations.

When Allstate Insurance Co. announced its aggressive new business approach in November 1999, analysts praised the company for its bold leadership in the New Economy.