In the past, insurers could write off fraud expenses with investment income and capital reserves. But those days are over. Reduced investment income and reserves have forced insurers to face such operational bugaboos as fraud and subrogation head on. Fortunately, insurers ahead of the curve have identified technology-based strategies to get to the heart of the matter.

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.

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.

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.

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."

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."

When Farmers Insurance Group conducted testing on a Web-based customer self-service program, the Los Angeles- based property/casualty insurer considered implementing a capability that would enable customers to make changes to their policies.Farmers executives recognized the value of self-service capabilities. After all, enabling a customer to instantaneously make a change to their auto or homeowners policy represents the spirit of customer self-service. But earlier this year, as Farmers executives examined the concept further, they uncovered a flaw with the concept: Giving customer unfettered access to make changes was considered an affront to Farmers' agents.

With their backs against the wall to stimulate profits and revenues in the face of poor economic times, senior-level executives in insurance companies are turning to their chief information officers to breathe new life into their static operations.As IT spending begins to inch upward-industrywide expenditures are projected to increase gradually each year, peaking at about 7% by 2007-industry experts believe it's incumbent upon CIOs to capitalize on the additional dollars they'll have at their disposal. Having learned from experience, CIOs indicate they are poised to reach a higher level of IT spending stewardship, with many pledging to convert IT from what is now regarded as an art into a science.

Most insurers rely on external guidance to help them map out information technology strategies. Over the years, they've derived such support from vendors, consultants, analysts and even state and national associations-all of whom possess a unique role in the grand scheme of IT strategizing.But a fledgling group that's touting itself as an "IT advisory and research firm" for property/casualty insurers is providing yet another alternative. The question is: Will P&C carriers embrace the concept widely enough to enable it to succeed?

A study released in June by Giga Research, an operating unit of Cambridge, Mass.-based Forrester Research Inc., provides insights into specific spending areas that CIOs presently value.The study, "Improving Business and IT Efficiency," culled insights from 10 CIOs across the United States and Canada in the property-casualty, life/health and specialty insurance industries.