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Insurance & Technology: The Blog« May 2008 | Main | July 2008 » June 24, 2008Oracle on the MoveOracle's mid-May acquisition of AdminServer made for some interesting conversations at this year's ACORD/LOMA Systems Forum, which was underway when the news broke. Exactly what that development portended was a somewhat contentious subject, as I documented in a recent story. But this week's announcement that Oracle will acquire Skywire Software makes it all but irresistible to conclude that Oracle's activities will have some discernible effect on the insurance vendor space. Oracle is clearly on the move in the insurance vertical space, and now counts two significant industry vertical vendors in its stable. It would be hard to identify a hotter policy admin vendor than AdminServer, and Skywire also brings important industry-specific capabilities to Oracle, as TowerGroup research area director David West attests: "Skywire is a respected brand and their prior acquisition of DocuCorp made them an even more attractive acquisition target," he comments. "The combination of Skywire's insurance data model and Oracle's database along with the document management capabilities should make Oracle a formidable force in the industry." The effect of this latest development on insurance-focused vendors remains highly debatable, but perhaps the first question is not what others will do but rather what Oracle will do next. Perhaps unsurprisingly, Novarica's Matt Josefowicz thinks that Oracle isn't finished yet, but he emphasizes the effect of its moves not on the large horizontal players active in the space, such as IBM, SAP and Microsoft, but rather the insurance vertical portfolio players, such as CSC, Fiserv and SunGard. "Oracle certainly has the capital and mindset to run rampant in this space," Matt comments. "We haven't seen a predator of this size in this ecosystem before." Bearing in mind the scale of Oracle's BEA acquisition, the vendor could eat up a large portion of the available acquisition targets without suffering any serious indigestion, Josefowicz suggests. "You could roll up much of this space for a billion dollars," he says. Mixing his metaphors, Matt adds, "Oracle has that kind of money in its couch cushions." Posted by Anthony O'Donnell at 04:38 PM | Comments EHRs: The Road(blocks) To AdoptionIt was interesting timing, to say the least. Just days after I spoke with Augusta Kairys, Highmark's vice president of provider relations about the Pittsburgh-based health insurer's efforts to support a higher rate of technology adoption amongst its providers, a report in The New England Journal of Medicine found that fewer than one in five doctors are using electronic health records. That paltry sum seems all the more surprising when one considers that doctors overwhelmingly agree that EHRs and related technologies have the ability to improve quality of care. So where's the disconnect that is preventing many doctors from adopting a technology that most agree will be beneficial?
Larger practices have been much quicker to adopt the technology. But even among practices of 50 or more doctors, only about half have implemented EHR technology. As the New York Times article points out. Adoption has been slowed, mostly, because doctors aren't able to justify the costs from a business perspective. For the most part, the (financial) benefits of EHRs will be realized by insurers and hospitals.
Hopefully, that last sentiment will cause more insurers to follow Highmark's lead in providing financial assistance to doctors who implement EHRs. Just because insurers won't "own" this bit of technology, doesn't mean they won't benefit from it. And as such, this could be an area worthy of more of insurers' technology investment dollars. Posted by Nathan Conz at 04:01 PM | Comments June 17, 2008Video Evidence: Floods and BCPLike my colleague Anthony O’Donnell mentioned in Editor’s Note for this week’s I&T newsletter, “a great wave of water is washing over” parts of the Midwestern United States. Here's the evidence: And while Anthony -- and no doubt some insurers -- can appreciate the metaphorical significance of the floods there, all insurers should be able to grasp the more tangible lessons that these floods and other recent natural disasters have provided – that things can go wrong, very wrong, and that when they do, it is imperative to have an up-to-date disaster recovery or business continuity plan in place. Business continuity planning (BCP) has always been something of a priority for insurers, but I’ve seen a renewed focus of the topic over the past few months. Just last week, I spoke to executives at Hastings Mutual based in Hastings, Mich., a town that lost power for over 17 hours on June 8, following a nasty storm. The regional insurer, however, managed to provide uninterrupted customer service thanks to disaster recovery plan that leveraged a 500 KW power generator. Last month, I spoke with The Hartford’s Keven Busque and Michael O’Connor on their recent BCP efforts, which has included placing a data center in Colorado—far away from the large carrier’s local data center in Simsbury, Conn. My conversation with Busque and O’Connor can be seen and heard here and on the ACORD LOMA conference web site. Posted by Nathan Conz at 04:09 PM | Comments Disasters, Avoidable and OtherwiseA Great wave of water is washing over the Midwest. According to the news programs I listed to as I drove across Northern Illinois this week, while the water had crested at the Fox River (visibly swollen from Interstate 90) areas downriver in the Mississippi system were due to face rising waters as the floods that have devastated Iowa drained in their direction. It wasn’t clear from the announcements how severely these more southerly areas could be affected, but it was ominous to reflect on the building, slow-motion character of the floods. The Iowans who watched the waters build at the end of this rainy spring were better off than those who recently suffered disaster without warning in that state, and those in other areas with more warning still are in a better position to take what measures may be available to secure their lives and property. As I gathered sources for a story on Solvency II the inexorable character of the rising waters provided a metaphor to think about the possible consequences of changing European insurance regulatory framework. As Solvency II moves forward to its 2012 effective date, American regulators and insurers have plenty to think about. The Europeans felt the need to clean house and adapt to a changing competitive field. As a result they are moving toward a state-of-the-art regulatory approach that uses sophisticated risk management and capital allocation to establish an economic or “full fair value” approach to measure companies solvency. According to Celent’s Nicolas Michellod, author of “Solvency II: Overview and Impact on IT,” European insurance companies will invest between €700 million and €900 million on IT projects to comply with Solvency II. If the Europeans are right about their need to overhaul their regulatory system in order to compete effectively, their arguments should apply to the United States as well, to the extent that the American insurance industry participates in the global insurance market and competes with its market leaders. Companies outside the European Union are watching Solvency II not only as a regulatory development but as a managerial leap forward, in that it will institutionalize advanced risk management methodologies. “There aren’t many U.S. companies that have anything comparable,” Stein comments. Like the gradually building floods in the Mississippi basin, the threats posed to the U.S. insurance industry by the Solvency II are visible from a long way off. The question is whether American insurers and their regulators will move with the speed necessary to stave off potentially disastrous consequences. Posted by Anthony O'Donnell at 07:42 AM | Comments June 10, 2008Weathering the Mounting Compliance ChallengeThere are several good reasons to go to Chicago next week, chief among them that I&T’s Midwest IT Strategies Executive Roundtable will be meeting at the Westin to discuss enterprise “Meeting the Enterprise Compliance Challenge.” Conseco executive Ellen Gudjonis will spark the discussion with a presentation about her company’s efforts to implement an e-discovery program this year. Among the other reasons for going to Chicago are that Chicago is a fascinating, beautiful city full of friendly Midwesterners and home to the Chicago Cubs (as well as some other team). Epicures will appreciate the fact that the city has come to its senses and repealed its prohibition of foie gras, reversing an ordinance passed in 2006. Also, this is one of the best times of year to be in Chicago, and from my personal perspective, the weather is a whole lot better than it has been where I live. Owing to some extremely unseasonable weather, Pacific Northwesterners have taken to referring to the current month as “Juneuary.” How bad has it been? To give an idea, Oregonians scoff at news that Colorado's Aspen plans to reopen its slopes to skiers. According to this report, Aspen Skiing Company says that record winter snow fall has left behind an average of more than three feet of snow on the upper slopes. By comparison, at Oregon’s Mt. Hood, there remain up to 12 feet of snow at the lower end of the slopes – and it is still snowing. Mt. Hood Meadows ski resort has closed, presumably because a base of nine feet of consolidated snow at the bottom of the lift just isn’t worth it. But at the mountain’s Timberline Lodge, where the temperature was 23 degrees Fahrenheit this morning, the season goes on. This weekend local TV news programs showed incredulous tourists and skiers frolicking in nine inches of fresh snow over a base of 149 inches at the lodge (elevation 6,000 feet). Timberline’s Web site reports that 855 inches of snow have fallen at the Lodge since the season started last September. Tuesday morning, the Oregon DOT’s TripChek transit cameras showed snowy scenes on the Cascade Mountain passes East of Portland and Salem, as well as the Blue Mountains near La Grande and the Siskiyous near the California border. While the snow line has dropped as far as 2600 feet in the Mt. Hood/Columbia Gorge region, we haven’t seen any at sea level – but that’s normal for January as well. Like the British, Oregonians reserve the right to complain about the weather. That’s about all one can do, which brings me back to the issue of regulatory compliance. Regulatory compliance demands are as inexorable and less changeable than the weather. There is still debate over whether the earth’s climate is getting colder or hotter, but there is no debate that the compliance climate is growing more, not less stringent. That being the case, as with the weather, one can make the complaint but has no choice but to be compliant. We habitually refer to "compliance" as if it were a discrete, clearly limited thing, but insurance companies must comply with a staggering range of rules, regulations and standards for a wide array of functions overseen by a range of state and federal authorities. The complexity of compliance is long-standing in the industry, and yet compliance requirements continue to increase. The reasons are manifold, including subprime crunch-related public perception of the demand of greater oversight over financial services and the slow but inevitable migration to universal accounting and reporting standards. "The quickly evolving global regulatory environment places the spotlight on insurance company business and compliance practices," asserts Rachel Alt-Simmons, a Connecticut-based analyst with TowerGroup. "Insurers must leverage technologies that increase business process transparency and facilitate the information gathering process." Doing so will help insurers to avoid the sanctions of regulators, but the control of information it will precipitate will also yield important business benefits, Alt-Simmons implies. However, dealing with the multifarious and fractured nature of compliance demands makes taking an enterprise view of compliance management a daunting task. Nevertheless, many insurers are moving toward a more unified approach, reports I&T's Nathan Conz. “What’s happened over the past couple of years – especially with Sarbanes-Oxley and with a lot of increased regulatory interests, large internal audit functions, etc. — is that a lot of companies are really struggling to handle this overload and these over-auditing situations,” says of of the article's sources, Maurice DiMeo, Ernst & Young's insurance practice lead, technology and security risk services. "What companies are looking to do is converge their efforts, converge their resources. Many times there are many different constituencies involved in the risk management space; tehy're looking to streamline a lot of that and, oftentimes, the technology piece can be a way of converging some of those controls." Posted by Anthony O'Donnell at 04:27 PM | Comments The Changing State of InnovationIn early May, I learned something in a New York Times article that completely blew me away: the first digital camera was actually invented way back in the 1970s. It was invented -- albeit in a clunky, rudimentary form -- by Steven J. Sasson, an Eastman Kodak electrical engineer. So what took so long for digital photography to truly take-off? Well, at least part of the blame has to be shouldered by the camera companies themselves, who for eons had depended heavily on the sales of film.
And just this week, another Times piece -- one that highlights the work of Jay Harman, an Australian naturalist – openly wondered: “What of someone invented a better mousetrap and the world yawned?”
Presently, Kodak has vastly improved its digital product development and, with energy conservation a hot topic, Harman’s ideas are getting increased attention. Still, one has to wonder what it would have taken for a company to recognize the value and opportunity that these innovations represented earlier. It’s likely, I think, that the main thing holding companies back from large-scale innovation is fear of the unknown. And in many ways, that fear is warranted. It’d be irresponsible in many ways to abandon tried –and-true business models (like film) for an unproven technology (like, in 1970, a digital camera). In certain pockets though -- including those that can directly relate to insurance -- the Web has taken a lot of the risk out of the innovation equation. Last year, for instance UnitrinDirect set up shop in Second Life, an online virtual world. Just this month, Aviva USA will begin using its presence in Second Life to recruit new agents to its producer community. However, with these innovative efforts, perhaps failure (for lack of a better term) is an option. In both cases, these investments represent less than one percent of the carriers’ annual marketing budgets. That’s a small price to pay considering that, if something like Second Life truly takes-off, the virtual world could become a viable new distribution channel or marketing channel for carriers. Such a low cost no doubt has helped Aviva USA and UnitrinDirect marketing and technology teams justify these efforts to their business partners. In a way, it’s allowed insurers to innovate on the fly. Another way to put it: its let some insurers build a new mousetrap, without having to tear down the old one just yet. Posted by Nathan Conz at 04:23 PM | Comments June 03, 2008Love, Music and Morale at IASATo call a performance “note perfect” is by no means a compliment: instrumental virtuosity without musical soul is pointless. However, one expects a reasonable degree of accuracy, phrasing and intonation from professionals. In this respect, the opening ceremony of this year’s IASA Educational Conference & Business Show hit some false notes, both literally and metaphorically. However, it also delivered some beautiful music, both literally – in the form of some outstanding student performances – and figuratively, through the keynote lessons on morale from the fishmongers of the Pike Place Fish Market. In the spirit of last year’s contributions to Sew Much Comfort, a group that provides adaptive clothing to injured service men, the IASA presented a contribution to the Music For Life Alliance, a non-profit organization that helps students who obtain musical instruments and instruction who otherwise could not afford those opportunities. Unfortunately, some of the music wasn’t so beautiful. As part of the IASA’s relationship with the group, student ensembles have been scheduled to perform at various times and places during the conference. One might expect that insurance professionals would be alive to the risks of such an undertaking but goodwill may have gotten the better of prudence in this case. The idea of having students perform is a questionable one, depending on the available raw materials and their judicious deployment. In the case of the welcoming reception on Sunday evening, the results were fortunate. A very capable jazz ensemble livened up the atrium outside the main exhibit hall as attendees filed in. However, a jazz ensemble casually placed is one thing, a string quartet under a spotlight quite another. As I ambled into the ballroom for the opening ceremony I felt a certain unease, caused by an unpleasant sound resembling a soundtrack slightly out of phase with a movie. I was surprised to see that the sounds emanated from a live string quartet — surprised, that is, until I remembered the IASA’s relationship with Music for Life. While I wish these promising young musicians every encouragement, their competence was not up to the occasion. The imperfections of their tuning and technique seemed exaggerated to the extent one expected a certain standard for such an event. Things went much better with a solo performance of "God Bless America" by a young lady with a lovely voice and an impeccable ear. Her sensitivity was such that even the imperfections of her performance added musical interest. Her nervousness gave her unwavering voice a pleasantly restrained quality and limited her use of those self-indulgent flourishes on the big notes that tend to mar the performances of anthem singers these days. Also, when she stopped before the song’s characteristic final repeat, it seemed a deliberate expression of the singer’s modesty rather than the product of stage fright. The sublimity of her performance was contrasted by the choice of music for the entrance of IASA president and master of ceremonies, John Bauer. Richard Strauss’ Thus Spake Zarathustra (commonly known as the theme from “2001: A Space Odyssey”) would have been grandiose for Jack Bauer of “24,” let alone John Bauer of Prudential Financial. I had to wonder whether Mr. Bauer's friends on the management committee chose the theme as a practical joke. Mr. Bauer did a creditable job, lending dignity to the occasion. My only quibble was with his inclusion of references to his own aspirations and accomplishments. Those things are better left to others. But I don't blame him: self-reference is the spirit of the age. A similar fault crept into the anthem singer's performance in the form of the Mariah Carey-like flourishes she put on the big notes. One of the things that made the keynote presentation of the Pike Place Fishmongers so endearing was that their story was largely about the suppression of ego in the service of the greater good, and how that breeds interpersonal harmony and success. The story began with Pike Place Fishowner John Yokoyama’s commitment to convert from disliking his employees to loving them, on the advice of Jim Berquist of bizFutures Consulting. That change on the part of Mr. Yokoyama inspired the stellar work ethic of the working fishmongers who famously interact with both customers and workmates in a playful, highly motivated manner. The reciprocity between managers and managed has helped Pike Place Fish to become world famous – the implausible object of a company vision suggested by an employee some years ago. The fishmongers have a music all their own, not entirely different from the improvisational interaction of the jazz ensemble of Sunday night. It has its own tone or mood, where an ethos of contribution eclipses the prevailing sense of entitlement. Outside, on Pike Street, a robust young man begged for handouts, apparently without shame that he failed to shift for himself, let alone work in the company of others for the benefit of all (though he seemed uncomfortable when an IASA exhibitor later questioned why he was thus unemployed). But inside the convention center, IASA attendees enjoyed the spectacle of young men relishing their employment, humble by mercenary standards but rich in joy and team pride. Nobody’s perfect, of course, and the fishmongers showed their vulnerability to the fatuities of the age when articulating their next great vision: achieving world peace, as an idea whose time has come. Hearing that voiced by one of the enthusiastic young fishmongers, I clapped along with everybody else. Who can’t clap in favor of world peace? However, I couldn’t help noticing the phrase’s similarity to Neville Chamberlain’s notorious vision of “peace in our time.” Nor could I help musing that perhaps the naivete of the vision might be more apparent if one attempted to visualize the end of crime, as an idea whose time has come. Wishing for the end of crime is not inconsistent with a realistic appraisal of the probability of its ever happening. And committing to not to being a criminal oneself is consistent with affirming the utility of the police. By all means let us commit to being peaceful, while recognizing that the conversion of oneself is ambitious enough. Yokoyama and the fishmongers should have left it at that. Posted by Anthony O'Donnell at 03:48 PM | Comments When the Going Gets Tough, Business As Usual Might Be OKThis year’s spring trade show season (ACORD LOMA Insurance Systems Forum and IASA Conference and Business Show), wrapping up this week with the IASA event in Seattle, has not struck me as particularly memorable in terms of earth-shaking -– or industry transforming -– technology announcements. That’s not to say that things are standing still, technology-wise. At both conferences there was been plenty of news about systems upgrades and new features and capabilities. There was clear evidence that SOA is making significant inroads in the insurance industry, as well as encouraging signs that STP is getting closer to being a reality at many companies. Talking to exhibitors, attendees, and association executives, it is evident that critical technology-related concepts such as standards, business process management (BPM) and customer-centricity are being embraced and implemented. Still, it is hard for me to identify any emerging technology trend or development that has emerged over the past three weeks at these two industry events. Still, there have been some frequent conversational topics, most of which would fall under the thematic umbrella, “Where is the industry going and what’s going to happen with technology spending?” One gets the sense of waiting for several shoes to drop. The anxiety, of course, is related to a number of macro factors -– the subprime mess and related global credit crisis and the prospects of more and stricter financial services-related regulation; the upcoming presidential election; the economic downturn, including concerns about both recession and inflation -– as well as some issues that are more “micro,” such as industry consolidation among both carriers and technology solutions providers. At both shows, many people asked me what I thought about the prospects for more vendor mergers, for carrier acquisitions, for insurance IT budgets, and for executive job security. While I’m reluctant to stick my neck out too far in terms of specific predictions, it seems to me that right now insurers probably can breathe a bit easier than their counterparts in the banking and capital markets industries. According to the “Budgets, Benchmarks, and Business Priorities For Insurer CIOs 2008: U.S. Property/Casualty Edition” research report from Novarica that was released in partnership with IASA, “IT budgets are holding steady at 3 percent of premium.” In the P&C segment, spending continues to be focused on initiatives such as policy administration system replacement, e-business and underwriting -– areas that are essential to both driving customer retention and growth and responding to compliance and risk management requirements. This could be seen as “business as usual” but in such a tough climate that probably should be considered a good thing. Posted by Kathy Burger at 02:25 AM | Comments
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WHITEPAPER Insurance 2020: Now what? In todayÕs competitive insurance industry, the challenges are many and there is much uncertainty.To survive and thrive, insurers must seek new models and strategic success that enable innovation and increase profitability. |
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