Although it is a simplification to describe it this way, maintaining the status quo in the insurance industry allows for a certain predictability. As such, this type of predictability can be perceived as affording those who best understand the nuances of this business more rewards. This is just one conclusion for explaining the way things are in the industry, and many others are possible. However, if the industry is to progress in meaningful ways, then the status quo must be challenged.
Cultural inertia describes the sum of forces, both obvious and subtle, that resist change and the risks inherent in challenging the status quo. This is not surprising considering the risk-averse nature of insurance. A reasonable defense of this situation is the complexity of insurance operations and the compartmentalization that occurs within a carrier to deal with it. The operational separation of functions and staff that results is one of the primary causes of both business and cultural inertia. In addition, the concept of "us versus them" often permeates various business units and their IT units. These and several other factors combine to make staying the course more attractive and less risky than seeking the path of innovation.
Of course, there are significant counter-examples to these concepts. Some of today's most successful insurance companies have in recent years made quick work of similar impediments to their business strategies to achieve their goals. It is likely, however, that even these carriers have pockets of cultural inertia within their organization that are sidelined by the success of other areas.
Technical barriers to long-sought operational innovations such as core system interoperability and reliable third-party data acquisition have appeared in recent years. One of the technologies that has breached these barriers is Web services. As IBM, Microsoft, Oracle, BEA and other solution vendors have promoted and exploited the technical benefits of this technology, carriers have experienced real benefits. Examples include agent portals that tap directly into legacy systems and data residing on mainframes to provide the most accurate and up-to-date information. The challenge to the effective use of Web services or other leading-edge technologies is often overcoming the tactical situation that results from a carrier's infrastructure.
The Role of Standards and Flexible Architectures. A lack of internal cooperation can come from a lack of standards - at least car companies can use the same bolts, steel and plastics to build different car models. And automobile manufacturers benefit from federally mandated safety standards and labor regulation. Carriers can buy application software built by a range of vendors in equally different ways but realize benefits because those products use industry standards such as ACORD for data exchange or Web services standards from W3C, such as Simple Object Access Protocol (SOAP).
In contrast, some carriers struggle with the differences between successive generations of code or data structures while they collectively create millions of lines of code using different languages, architectures and business goals.
Prototypical Insurance Essentials
How far along the technology utilization path should a carrier be in today's market? A cynical answer would be that they should be no further ahead than is absolutely necessary, especially in terms of the cost to get there. A wiser point of view would be to have moved along a strategic technology utilization path far enough to empower the company's business units to achieve their goals without the IT department causing undue delay or cost. Likewise, the corporate culture will have to be far enough along such that any remaining silos between lines of business, and especially between IT and any business units, are virtual and not physical.
The vast majority of insurers have arrived at a juncture in their progression from the basic data processing of the 1960s and 70s toward the possibilities of today's IT functionality. The forces and operational processes that shielded the industry from some external realities have waned in recent years. Carriers that want to remain vital and engage in the modern financial services marketplace need to determine what constraints hold them back. Leading carriers of different sizes have shown that technology is ready to provide the necessary tools to empower the innovation needed for success if mind-sets, culture, and internal political will allow it to be used.