While the basic purpose of life and health insurance has not changed significantly in recent years, the market and competitive factors driving business and technology strategies in those segmentsshifting consumer demographics, heightened service expectations, increased competition from both traditional and non-traditional sourcesare forcing carriers to be more flexible and fast-moving than ever before. This is translating into anemphasis in the life/health business on integrated solutions that can be developed and delivered quickly, built on standardized, interoperable platforms.
At the same time the life and health industries are likely to experience their share of regulatory and legislative changes in the next few years. Issues such as estate tax reform, an increase in IRA contribution limits, credits for long term care (LTC) insurance and the systematic removal of barriers between banking and insurance will create tremendous opportunities for the further development and enhancement of core application systems such as policy administration and claims.
"The insurance consumer is in the best position ever, since the competition for his/her preferences, loyalty and premium dollar is at an all-time high," comments Steve Stillions, vice president of research and development, Fiserv Life Insurance Solutions (Cedar Rapids, IA). "We have to remember the underlying purpose for insurance: to share the risk with our customers for a reasonable fee, but most importantly be there when the service is required. Even a 'virtual' company still must provide 'real' service."
How does this translate into development and delivery of new products and services, as well as the systems that support them? "Right now, there is more of a trend to business solutions that fit into a two-year business planning horizon," says Rich Carreau, senior vice president of marketing for Computer Sciences Corp. (CSC, El Segundo, CA). "This trend drives two-year implementation rollouts with multiple phased deliveries. Six-month projects are best to prove delivery of IT value. In today's mobile environment, there's no guarantee project sponsors will even be there in 15 months and their project may be obsolete by the time it's finished."
It appears the focus of core applications development on the life side will be the continued support of various investment-based concepts in the equity-based life policies and hybrid annuities that have proliferated in recent years, says Carreau.
Financial services convergence is a key driver in this environment. "As retail banks and insurance companies are able to sell to each other's customers, new types of distribution networks will require systems to accommodate them," says Michael Dufton, president and chief executive officer of SOLCORP (Mississauga, ON). A wholly owned subsidiary of EDS, SOLCORP provides software solutions and consulting services not only to the life insurance industry, but also to institutions involved in the evolving bancassurance segment.
Another factor changing the competitive arena in the life and health sectors is the recent spate of mergers and acquisitionswith more likely to come. Rather than reducing the number of potential clients, many of these mergers actually are creating more opportunity.
"The recent ING, AIG and AEGON acquisitions have had the most notable visibility in the life insurance marketplace," notes CSC's Carreau. "They reinforce the intense competition in the industry to gain market share and eventually get better customer attention with 'womb-to-tomb' products and services. In each case there is a relationship consolidation and management change, which makes us reinforce our value to the enterprise. In two-thirds of the cases, we find more business opportunity. On the supply side, there are numerous partnerships and alliances occurring every day that require us to stay current and innovative in our go-to-market approaches."
Another segment seeing increased activityon both the business and technology development sidesis long-term care, where growth and consolidation of the market is necessitating new core system solutions. Though a relatively young product, there recently has been a good deal of retrenchment in the LTC segment, with the sales of business blocks by Fortis and Travelers, plus UNUM's purchase of Provident a couple of years ago.
"LTC has added another life cycle event for a new sale, and has started some product creativity toward homogenization or mass customization," says Carreau. "There is potentially a better worksite demand satisfaction, with DI (disability insurance)/LTC combo products offering potential solutions to employee retention. What does that mean to systems? It means flexible product, time-to-market machines that permit combinations of risks at sellable premiums."
At Fiserv Life Insurance Solutions, product development and service will also be a key factor in future development of core systems. "Our clients primarily want us to continue to provide additional capabilities for them to expand their business, and provide better service to their customer base, including agents, policyholders, and other providers," says vice president of R&D Steve Stillions. "As certain insurance products become commodities, service and customer commitment shine as the differentiating factors that make our clients successful. And believe me, our clients are very proud of the service they provide to their customers, and therefore very demanding of us."
Even as legislative and product issues are sorted out, the undertow of the technology wave will provide challenges as insurers continue to look for bigger, better and faster solutions to their automated administration needs. Life/health solutions providers contacted by Insurance & Technology concur that communications convergence and a movement toward data standardization will have a profound influence on the industry.
This trend should also result in substantial progress toward seamless integration of previously disparate systems and technologies. SOLCORP's Dufton says that with continued industry consolidation, companies will inherit such systems.
"Although a cost must be borne initially to adapt, continued progress in the form of HIPAA regulations and evolving ACORD standards will ultimately benefit insurance companies and insurance consumers," concurs Fiserv's Stillions. "The recent alliance between MIB and ACORD is an example of this effort reaching critical mass."
By using a single data standard, the industry will be able to expand its e-commerce capabilities across the board. Clearly, it is still the raw potential of e-business that excites the industry. "Our customers are asking for Java-incorporated, Web-based solutions," says SOLCORP's Dufton. "The need for back-end office solutions, new distribution systems and shorter time-to-market pressures will be met with Web-based solutions, and the companies that provide solid Web-based strategies will prosper most in the future."
CSC's Carreau agrees, noting, "Looking at the business and technology drivers in our market there is a focus on two very important areas: The first is e-business enablement and the need to produce friendly 24/7 systems. With issues such as privacy and security, distribution expansion, time-to-market shrinkage, cost reduction and customer service, e-business enablement is crucial to our clients. Secondly, the transactional frameworks within these systems will be reengineered for message-based business."
Another emerging technology that life/health systems vendors find promising is voice over IP, which could become a main component to e-business. The industry will also be keeping an eye on enterprise application integration development, as insurers will be keenly interested in finding efficient ways for system components to communicate with each other.
LIFE/HEALTH SYSTEMS: KEY TRENDS AND CHALLENGES
- Regulatory and legislative initiatives impact annuities, long-term care, estate planning, etc.
- More demanding customer base with more complex retirement, insurance, care, estate planning needs.
- Trend toward shorter development cycles and phase-based product roll-outs.
- Financial services convergence, emergence of bancassurance model.
- M&As realign the life and health industries; fewer players with more complex systems needs.
- Need for integrated solutions built on standardized platforms.
- Evolution toward e-commerce, Web-based applications.
- Look to the future: potential for voice over IP, EAI systems
LIFE/HEALTH SYSTEMS: SOLUTIONS PROVIDERS
Allfinanz, Dublin, Ireland
Apex Data Systems, Tucson
CSC, El Segundo, CA
Connect Systems Inc., New York
Coss Development Corp., Mequon, WI
DataLife, Verona, NJ
DWL Inc., Toronto
Erisco, New York
Facts Services, Coral Gables, FL
FIPSCO, Des Plaines, IL
Fiserv Life Insurance Solutions, Cedar Rapids, IA
FDP Corp., Miami
Genelco, St. Louis
Insurance Technologies, Colorado Springs
Life Insurance Data Processing, Woodridge, IL
Managed Solutions Corp, Dublin, Ireland
Management Data, Inc., Birmingham, AL
McCamish Systems, Atlanta
Mynd, Columbia, SC
Navisys, Edison, NJ
Sherwood International, London
Solcorp, Mississauga, ON