There is no question the insurance world is changing. There are a lot of new challenges, new players, new technologies and new productsproducts for coverages we didn't even know we had," says Peter Zale, vice president of product management at Lowell, MA-based Allenbrook, about the outlook for the property and casualty insurance industry.
And, adds Zale, the new challenges and opportunities will have to be solved with technology, but in a much shorter time frame, at less cost and with a strong return on investment. "ROI analysis is long overdue," he says. "Historically, carriers have spent a fair amount of time building software without defining the scope."
The focus on ROI is a relatively new phenomenon in insurance, says Paul Philp, president and CEO of AscendantOne (Nashua, NH), a front-office solutions provider. "Vendors got blank stares from insurance companies three years ago when ROI was mentioned," he says. "It wasn't a big issue until recently."
While carriers have been focusing on ROI for most of 2001, the September 11 attacks and the resulting negative impact on the economy have turned semi-budget-conscious executives into budgeting gurus. "In the past, there was spending for spending's sake," says Andrew Jackson, senior vice president, marketing, InSystems (Markham, ON), an e-business financial services solutions provider. "Now there is the magnifying-glass effect and carriers are looking for a rock-solid business case in every new project."
But even with increased scrutiny on ROI, "the amount of spending will not decrease," says Cecil Bordages, vice president of property & casualty solutions, CSC Financial Services Group (El Segundo, CA). "There has been some lengthening of sales cycles after September 11, but insurers are moving ahead," he says. "Most are trying to fend off competition and reduce costs, so not improving technology is not an option."
David Wagner, president and CEO, Hartland, WI-based AQS Inc., a commercial lines policy administration system provider, also sees a slowdown in the decision-making process. "It seems there are fewer decisions being made when it comes to buying technology," Wagner says. "What has happened will impact purchasing to some extent, but carriers will continue to invest."
However, the fallout from September 11 may not be known until late 2002. "People...don't know what the business environment is going to be like in 2002," says AscendantOne's Philp. "People are going to revamp budgets three or four times over the next six months."
Jeffrey Glazer, president of Insurity, a Hartford-based P&C policy administration solutions provider, says he is getting mixed messages from the industry when it comes to IT spending. "The people on the front lines, the workers and junior managers, are worrying about management cutting budgets," Glazer says. "But if the senior executives are planning to cut technology spending, they are not saying it."
Others speculate that while overall technology spending should be increased, it won't be raised as much as in previous years. "We will probably see a two to three percent increase in spending, down from seven percent last year," adds Allenbrook's Zale.
Paul McDonnell, managing director, insurance practice, at KPMG Consulting (New York), says, "Insurers are maintaining the levels of IT spending or even increasing it; they have a lot of stuff on their plates."
Focus on Cost Cutting
Whatever is spent on IT, a major focus for carriers will be cost reduction. "The industry is feeling even more pressure to reduce expenses and stay profitable," says Gordon Gaar, vice president and CTO, INSpire Insurance Solutions (Fort Worth), a policy and claims systems outsourcing and software service provider.
Not only will the aftershocks of September's events change technology strategy for carriers, but so will "tremendous competition," says Jim Kroviak, leader, Insurance Segment, HNC Insurance Solutions (San Diego), a decision management software provider. "P&C has almost reached a commodity level in many lines," Kroviak says. "It is a mature business and to remain profitable, you have to run efficiently. If you are not efficient, cost reductions are imperative."
In fact, adds AscendantOne's Philp, "Senior executives definitely recognize the opportunities for reducing costs. So much so, that they indicate that customer acquisition is now secondary to reducing costs."
In order to cut costs, there are certain mature technologies that carriers are likely to begin to adopt. "Workflow can really help carriers reduce costs," says Andreja Bozovic, director of marketing at Toronto-based Castek, a P&C business software provider.
Adds AQS' Wagner, "Carriers are trying to eliminate the manila policy folder that is sent all over the building. Carriers can take the data when it comes in from the agent, capture it with imaging and then route it electronically throughout the organization," he says. "Taking seven to 14 days to turn an application for a new policy around is far too long. With workflow, the time can be significantly reduced."
One approach that will significantly speed carriers' workflow processes is rules-based technology, or automated systems. "Not as many companies are embracing rules-based technologies as they should," says Wagner. "At the moment, automated underwriting and claims processing are sensitive subjects."
This is true with auto-underwriting, says INSpire's Gaar, because carriers still want an underwriter to review a policy before it is approved. "Not many carriers are doing completely automated underwriting," Gaar says. "Most are using automated processes for part of their underwriting, especially for simple cases. Those that are more complex are referred to an underwriter."
Robert Madill, vice president, cost containment solutions, CSC Financial Services, says, "Carriers do not want to take the processes completely out of the underwriter's hands. By using certain underwriting approval rules, you can approve a certain number of simple policies, so the underwriters have the time to deal with the more complex questions," Madill says.
However, mainly due to the maturation of component-based technologies, developing an automated system does not require a costly new underwriting system that will take three to five years to implement. "Carriers have been burned in the past by $200 million technology projects that took years to develop and never delivered results," says HNC's Kroviak. "It is not likely that a carrier is going to go out and replace an entire policy processing system. In many cases the systems don't need to be replaced; they can be enhanced with components."
AscendantOne's Philp agrees. "Component-based technology is very important," he says. "We have built around components so insurers can take a piece of the technology at a time, rather than all of it at once." By taking on pieces of a project, carriers will shorten development time for each project, thus being able to show an ROI in the short terma focus of budget-conscious firms in today's market.
Many component-based technologies, especially ones that deal with agents and other partners, will be powered by XML. "A technology that will have a profound impact during the upcoming year will be XML," says Kevin Rosen, director, insurance practice, Piscataway, NJ-based Silverline, a software development and integration services firm. "The industry is really moving towards the ACORD XML standard."
One reason why XML will play a large part in 2002, says Neil Betteridge, senior product architect, Castek, is that the technology has matured. "Technology that was previously only in techy-land, will be adopted.
Adds Allenbrook's Zale, "Technologies that enable different systems to talk to each other to exchange information will be important. XML allows communication and drives down expenses while integrating systems from the carrier and its partners," he says.
PROPERTY & CASUALTY SYSTEMS: Key Trends and Challenges
-- After September 11, insurance companies have a longer decision-making process for technology buys.
-- With a slumping economy and increased scrutiny, there is a strong focus on return on investment (ROI).
-- To deliver ROI, insurance carriers will plan more smaller, rather than fewer larger, projects.
-- Component-based technology will play a major role in helping deliver small projects on time.
-- Maturation of ACORD-standard XML will increase adoption rate by insurance carriers.
-- Workflow and imaging technologies will help reduce costs for insurance carriers.
-- Automated decision/rules-based technology will increase insurance carrier efficiency.
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio