Challenging Climate Forces Insurers to Break New Ground

If there is a positive to the challenges faced by the insurance industry in 2009, it's that new technology approaches have enjoyed some validation. Members of I&T's Reader Advisory Board offer insight into their organizations' IT strategies for 2010.

If there's a silver lining to the challenges of 2009, it is that new technology directions have enjoyed some validation. Insurers' spending reflects a widespread conviction that it is important to move forward with systems transformations, even in troubled economic times.

The successes of leading-edge technology users -- such as Progressive Insurance's use of analytics -- have driven aggressive adoption of similar solutions on the part of other carriers. As members of Insurance & Technology's Reader Advisory Board attest, insurers are reevaluating their business models and leveraging technology to renovate business processes and drive more customer- and distributor-friendly service.

Piyush Singh, CIO of Cincinnati-based Great American Insurance Co., a subsidiary of American Financial Group ($4.3 billion in annual revenue), suggests that the long-term success of insurance companies depends on a break with tried-and-true technology approaches. "There has been a tendency in the industry to throw money at implementing point solutions, exacerbated by vendors having a narrow and short-term focus," he says. "Those things won't work in the new world."

The economic crisis has driven review of systems for the purpose of cost management, revealing the persistence of problems caused by excessive complexity. P&C companies cannot control claims-related losses, but they can control the huge cost of salaries, for example, through streamlining processes and eliminating unnecessary or redundant steps. "We need to get to straight-through processing," Singh insists. "We need to ... eliminate non-value-added intermediate steps in processes."

In addition, despite the wealth of data enjoyed by the insurance industry, poor data quality continues to impede effective data analysis, Singh asserts. Personal lines has done a better job than other lines of business in this respect, he says. "The need for specialty and commercial lines to make headway will only increase as companies face mounting competitive pressure to be more effective and cost-conscious," Singh remarks.

Another challenge, which grows more urgent each year, is the incompatibility of legacy technologies and processes with the expectations of new generations of insurance professionals. "These people have grown up in a different world, technologically," Singh explains. "They won't stick around in places where they can't enjoy a modern, technologically satisfactory work environment."

As carriers overcome challenges around process efficiency, data quality and the workforce, ultimately both the insurance industry and its customers will be better off, Singh predicts. "The companies willing to look to the future dispassionately accept this," he asserts. However, that willingness implies leaders with the vision to chart a course. "Corporate leaders must take a long-term view rather than avoiding the hard choices," Sing adds. "They will need to fight an uphill battle to change the status quo and inertia. It will be an exercise in social change as much as a technology implementation."

Shifting Business Emphasis

Carmel, Ind.-based Conseco (more than $4 billion in annual revenue) has been focused for several years on the challenge of legacy systems housing in-force business. While the carrier will continue to consolidate that environment, Conseco's IT focus has changed to support a new-business-oriented strategy, reports CIO Russ Bostick. "We are moving from being a product-oriented company to being a market-oriented company," he says.

The market to which Conseco is oriented is middle-income working and retired Americans, whose demand leans toward protection products, such as supplemental health insurance, whole life and annuities. The carrier has broad distribution relationships, including captive and closely allied independent distribution, and also seeks to act as a distributor of other manufacturers' products when that serves the needs of its chosen market, Bostick adds.

This new orientation has significant implications for the kinds of technology Conseco will or will not invest in, Bostick notes. For example, since Conseco's market segment has a limited appetite for exotic or complex products, product configuration technology is not likely to be an area of emphasis.

"Because of our distribution model, we can use technologies such as CRM or marketing analytics that will help us to produce leads," Bostick says. "We're interested in the kinds of ... technologies that will improve customer service and foster a positive view of our company within our target market."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio