Most insurance technologists will remember 2002 as a year of tightened budgets that forced conservative spending. And although some IT leaders are sitting tight on policy management spends while they wait out a storm they hope will ease in 2003, the burden borne by IT leaders isn't exactly going to be lifted with the singing of Auld Lang Syne. Because times will be tough into the coming year, carriers must continue to make tactical changes that will move them toward more efficient policy management and thus greater ROI. Those that do not run the risk of being left behind.
"I don't see this big in-flow of resources to make wholesale change in policy management," says Mark Cypher, a Chicago-based partner with Deloitte Consulting. Instead, he says, into 2003 "carriers will do what they can with the funds available."
Slow and Steady
Dan Sobotincic, chief technology officer for London-based Sherwood International, agrees that carriers will be more focused on smaller projects such as "interfacing to existing systems as opposed to replacing large-scale subsystems." And, warns Mark Brockmeier, regional vice president, US sales and marketing, CSC (Austin, TX), "If you don't make changes this year, you have to do it nextyear. If you don't do it in 2003, that makes it all the more urgent to do it in 2004 because you will start to fall behind the curve."
Since ROI is still the name of the game, in order to produce deliverables in a short timeframe insurers are making improvements to their systems by integrating views of customer and product through a number of methods, including point solutions, the use of middleware, and (if they've not done so already) Web-enabling a policyholder or agent-facing piece of the process, says Deloitte Consulting's Cypher. Additionally, XML is becoming more widely used for data transport in and out of policy management systems. And although Web services is still in its infancy, insurance technologists are beginning to think about incorporating it into their policy management strategies.
Still, when planning policy system improvementswhether for property/casualty, life, health or reinsurance organizationsthe safest bet for insurers still is taking the "back-to-basics" approach. "The trends out there aren't necessarily new," Cypher says. "They have been the foundation of good policy management capabilities for a long time," explains the consultant, who advises IT execs who are thinking of making improvements to their policy management systems to focus on "visibility of customer, visibility of product, and how the two interact."
Single-Customer View Dominates
Because their policy management is complicated, such advice seems especially useful for carriers of property and casualty coverages. In fact, P&C is the area of insurance with the biggest policy management problems, according to Cypher. Many times these carriers offer multiple lines of insuranceeach usually with its own product-centric system. Adding to the complication is the fact that carriers of the coverages deal directly with policyholders and agents. Also, sometimes these insurance companies operate in the global arena. In order to gain scale of operation they must achieve a single customer view. In addition to the consolidation of a carrier's view of its policyholders, "insurance companies are looking for systems with flexibility to give any end-user, from senior underwriter to consumer, the ability to get their job done in a secure way," explains Jay Otterbacher, senior vice president, P&C division, of CSC's financial services group. "Carriers are looking for a single set of business functions that have the ability to serve all lines and all channels."
XML and Web Services
XML, including the ACORD (Pearl River, NY) standards, and Web services, according to Otterbacher, will be key parts of an architecture that provides the flexibility and configurability that insurers require. In fact, stresses Otterbacher, these technologies "need to be part of an architecture that allows insurance technologists to integrate and take advantage of existing code."
Still, for the time being, Web services are "still very much in the 'early-adopter' phase," according to Sherwood International's Sobotincic. "And although there are a variety of niche offerings in the market, there has been a lack of enterprise-level insurance architectures based on Web services that offer, not just target functionality, but also strong legacy integration." However, Sobotincic believes there is a strong business case for the use of Web services to support industry-standard EDI and provide easier integration among supply chain members. His projection is that Web services adoption for policy management will begin in the next 12 to 18 months in the form of small, strategic projects.
"These will act as the catalyst that helps companies to deploy enterprise service architectures that can be used for larger-scale adoption," explains Sobotincic.
Componentized Approach Expected
Just as property and casualty carriers are plagued with the inefficiency of disparate systems, life carriers are dealing with problems of their own. Fresh on the minds of many life CIOs are memories of large investments that never reaped justifiable returns. And although carriers of all lines of insurance are feeling the impact of the weakened economy, many life carriers, in particular, are practicing a level of caution that was learned the hard way.
For example, many life carriers have made significant automation investments in annuity capabilities in the past few years, and "to do a major launch in a time when annuities became very cold made it very difficult for those carriers to get a lot of those returns," explains Darren Klauser, vice president, life and health division of the financial services group for CSC. "I think that the life insurance marketplace has really been hampered substantially by the downturn."
Coming off of a year of "disciplined spending with a higher cost reduction focus and airtight ROI," suggests John Gorman, executive vice president sales and marketing, at Edison, NJ-based Navisys, life carriers will continue practicing staged implementations that focus on componentized pieces of the policy management puzzle into next year. Additionally, into 2003, life carriers will concentrate on the consolidation of siloed systems.
Spending for the Future?
And although they will be focused on spending "in the now," CSC's Klauser warns that in 2003 life insurance companies are only going to be one year closer to pressures that he says aren't going away. "The fact of the matter is there are still a lot of drivers around financial convergence," Klauser says. "When insurance companies look at who their competition is five or 10 years out, it will be investment houses and banks, and those sectors tend to spend a little more on IT than the insurance companies. If life insurance carriers do not spend now, the result will be short-term savings for a long-term pain."
In order to remain competitive, gravitation towards automation solutions that will minimize touch points and streamline processes is recommended. "A lot of policy management and administration is across multiple systems, so carriers are looking to seamlessly bring systems together," according to Klauser, who explains that "at this point it's almost an assumption that anything that is done with integration in policy management is going to be done across ACORD XMLife and TxLife standards."
Minimized Touch Points
Security Benefit Group (SBG, Topeka, KS, $11 billion in assets under management), a financial services company that currently processes annuities using Navisys' Home Office (a product that provides administration and product development capabilities for traditional and variable life and annuity products and was previously called LifeCad), has the long-term objective of reducing the number of touch points in its current process. David Keith, senior vice president and chief information officer, Security Benefit Group, says that currently all of its annuity applications are received through the mail. Applications are then scanned into SBG's imaging system and routed to the designated electronic queues for processing.
"Every form that we use in our environment has a unique bar code, or footprint, so that when it is returned to Security Benefit Group it is tracked and cross-referenced," according to Keith.
Once the information is transferred to the Navisys system, advisors and end-customers can perform specific transactions, such as fund shifts and address and beneficiary changes, via Security Benefit Group's Web site, "so there is no hand-holding or touching of paper in that process," says Venette Davis, senior vice president of people development and brand identity, Security Benefit Group. With its current tools set in place, says Keith, the company is in a good position to minimize touch points even further. Although its strategy is still in the analysis phase, "we plan on looking at taking applications, whether they are received electronically via the Web or through the mail, and having them loaded directly into our administrative platform," says Keith. "For the applications that are received via the mail, we will look at scanning the documents and loading directly into our administrative/policy systems using the OCR optical character recognition technology concepts." Although SBG has yet to analyze the OCR approach, according to Keith "it has the technology framework in place to make such an integration easier."
Additionally, Security Benefit Group is exploring the use of Web servicesa technology that, according to Navisys' Tom Famulero, senior vice president, product development, will be a differentiator in 2003 when it comes to policy management. However, in order to take advantage of the technology's benefits, carriers must have compatible systems. "There are a lot of antiquated systems that cannot support Web services and they aren't going to be able to support them anytime soon," says Famulero. "It takes a system that can be componentized."