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Brave New Web

As distribution partners recover status, life/health insurers strive to leverage existing systems to exploit the unique potential of the Internet for insurance.

In life and health insurance, as elsewhere, technology solutions will be shaped by disciplined spending based on demonstrable—and quick—return on investment. In the life arena this will mean finding solutions to tie disparate legacy systems to common front-ends to facilitate increased services for both end customers and distribution partners. Health insurers face similar challenges, but with the added pressure of looming HIPAA compliance deadlines on their technology agendas.

Many life insurance companies find themselves facing a new economy while feeling the effects of Y2K spending and subsequent false starts in CRM-related initiatives as they tried to come to terms with the Internet, according to John Johnsen, managing director, TCi Consulting, a life insurance and annuities research and consulting firm based in Cresskill, NJ. In the resulting mood, he says, "If a project is going to save money, it's got a good chance of surviving, but if it's just to make things look nicer, you're not going to get the funding for it. Right now if you're going to spend money on IT, you'd better make sure you have a payoff on it," Johnsen adds.

That doesn't simply mean IT managers can scrimp. In fact, they need to spend more and get better results. "Today it's no longer MetLife competing against Prudential; it's Met and Pru competing against Vanguard and Fidelity and other financial services companies," Johnsen says.

As part of the tighter connect between technology spending and the delivery of business results, insurance organizations will increasingly pressure IT vendors for more flexible pricing models, according to Michael Dufton, president and CEO, SOLCORP (Mississauga, ON), a software solutions and consulting firm serving the life insurance and bancassurance industries. "Rather than on a pay-as-you-go basis, insurance companies will try to tie their technology spending to business components so they can move to a more variable cost model," he says.

Companies across the board are looking to execute short-term, economic projects, says Mike Risley, executive vice president, integrated sourcing solutions, CSC (El Segundo, CA). But shortcomings in existing systems will continue to drive investment in some areas. "We still see some legacy conversions because while you can put a nice wrapper around some systems, some back-end systems still take multiple days to run transactions," Risley says. "That's not acceptable when carriers are competing with banks and other financial products out there."

Defining A Market

Many larger carriers are attempting to be full-service financial institutions, offering services across a wide range of products, according to Risley. "We see a lot of effort in those companies to continue to implement technology to get a better handle on the customer and deal with multiple product lines," he says. "What we see the rest of the companies doing is differentiating themselves on one of three things: price, product features and channel."

Perhaps the number one technology focus among carriers, according to Risley's colleague, Paul DeFuria, executive vice president, life annuity solutions, is EAI, or enterprise application integration. The good news about EAI, he says, is its promise of enabling functionality and componentry without wholesale replacement. The bad news, he adds, is that the first letter in EAI stands for enterprise. "Whenever you start a project with enterprise scope, it can be tough to maintain sponsorship," DeFuria says. "You've also got to do this while the business is operating."

One thing competition has shown over the past few years is that e-business for insurance may not mean e-sales. As the buzz over the possibilities for e-sales has died away, many e-commerce IT departments have been assimilated back into normal operations, according to CSC's Risley. But that speaks more to a shift in emphasis, not importance. "E-business is just no longer a big separate project but part of the mainstream of any big technology project," he says. "Whenever you do any kind of project now, you've got to assume that this data is now available on the Web."

Insurance companies are looking for Web that can support business from an administrative standpoint and—with regard to inquiry capabilities—with both agent/brokers or direct customers, says Bill Rich, marketing, life and annuities, Sherwood International (Armonk, NY). "To be competitive, companies must build applications that will run in a Web environment, or virtual mode, in order to avoid the very expensive lessons learned in large legacy systems with high expense ratio. The new Web-enabled systems provide greater automation of functionality and therefore lower cost of administration, and better access."

Insurance Is Not Banking

Insurers are smarter now about the differences in opportunities the Web offers the insurance and banking industries, according to Risley. "A lot of people will do research on the Internet but still use a traditional method to actually buy and bind the business," he says. Consequently, "e-service is where most of our customers have been spending money."

SOLCORP's Dufton sees a continued focus on Web enablement from both an internal and external perspective. "We've been seeing it with the advent of moving to a complete browser presentation layer, being able to use that, either with an intranet or on the Internet itself, to give customers a lot more flexibility in terms of deployment and access to their systems."

Today's customers expect to be able to do more on the Internet than inquiries and simple transactions, and the customer in mind is increasingly the distribution partner, according to John Gorman, vice president, sales and marketing, Navisys (Edison, NJ). "We're seeing the systems that do the core processing being integrated heavily into a browser-based front end to create a seamless experience for the customer, the producer and the people in the home office," he says. "That translates into a need for more open, platform-neutral, back-end systems that can talk to other systems through standards like XML, and of course robust Web-based front ends that can address more complex processing needs."

In health as in life, many carriers are thinking twice about spending a lot of money on consumer Internet offerings and are looking at alternatives such as distribution enablement through either brokers or employer purchasing groups, according to Lauri Ingram, senior program director, insurance information strategies, META Group (Stamford, CT). Assessing the value proposition is no easy matter, however. "Brokers will appreciate a carrier giving them Internet-based service capabilities, but since brokers, healthcare providers and even employers deal with more then one carrier typically, there's a limit to the value of any one carrier solution."

A softer health insurance market and a customer demand for cost savings is driving efficiency related projects, says Dave Snow, president and chief operating officer, Empire Blue Cross and Blue Shield (New York). OCR-assisted document management projects and Web-based self-service initiatives have enabled the carrier to grow without expanding staff overhead, Snow says. Labor intensive keying of claims forms is mitigated by the implementation of what he calls "a very sophisticated model to receive all our claims and digitize them," designed with Xerox (Stamford, CT) and document and data solutions provider R2K (New York). Internet-based self-service capabilities similarly reduce contact center staffing, he adds.

Moving to Real Time

The efficiencies Empire is enjoying continue to elude health insurers still struggling to move to Web-based applications. "As carriers move toward Internet-based transaction systems, they realize their legacy systems need to be real-time, not batch," says META Group's Ingram. The problem is that while realizing the need to get even with the competition, carriers also need to meet the Health Insurance Portability and Accountability Act (HIPAA) compliance deadline in October 2002.

What many carriers are doing, according to Ingram, is to leverage the HIPAA mandate to get some of the other work done. "We're seeing a lot of carriers putting more into their project budgets for HIPAA compliance than just the bare bones," she says. "Hey, you're making this investment, why not leverage it to try to leapfrog beyond HIPAA, especially in transaction processing?" The carriers who started their compliance push a year ago are in position to do this, Ingram says. "The ones who have put it off are now looking at Band-Aid solutions and are going to be even farther behind."


LIFE/HEALTH SYSTEMS: Key Trends and Challenges

-- Use of browser-based front end to unite disparate back-office systems.

-- E-business focus on service, not sales.

-- Adopting a variable cost model with vendors.

-- Shift of service focus from end-customer to agent or broker/dealer.

-- Trend from captive to independent agent sales force.

-- Emphasis on security, privacy and business continuity.

-- Continued migration of health systems from batch to real-time, Internet-based processing.

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

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