Doing More with Less

Although some insurers are delaying major policy management spending until 2004, to stay competitive now carriers must take measured steps toward efficiency.

Increased Integration

In anticipation of the demand for Web services in life policy management, CSC is conducting a program for its customers to pre-invest in a Web services build-out ofevery transaction a life insurer goes through when conducting business. So far the vendor is pleased with the response. ""We weren't quite sure what the response was going to be but we had significant adoption, so we are four months into the construction of those,"" Klauser explains. ""The entire build-up will be completed by March 2004. At the end of that timeframe we will have rolled out over 70 Web services to our customers."" Klauser predicts that Web services initiatives will spur partnership trends because carriers ""will become more integrated and networked with partners,"" he says. ""It really sets up the opportunity to seamlessly integrate their capability with non-traditional partners through the use of automation.""

Reinsurance Report:

Global Focus on Risk/Data Mgt.

During a time when the IT departments of life and P&C carriers are struggling, it's no surprise that their indemnifiers aren't doing much better. Some, according to CSC's Brockmeier, are in desperate shape. ""There is a tremendous pressure on reinsurers' balance sheets,"" he says. ""Many of them have put their divisions up for sale and AM Best is downgrading reinsurer ratings almost a single grade or more across the board.""

Although it added fuel to the fire, the events of September 11, 2001, are not the sole source of the industry's problems. According to Brockmeier, a spate of hurricanes in 1998 and 1999, as well as global catastrophe losses associated with a large European windstorm, led to losses spurring a reinsurer ""obsession"" with their global spread of risk. ""September 11 only brought that home,"" says Brockmeier. Since the events of that day, reinsurers have weighed the importance of globally managing risk even more heavily.

""There is a recognition that reinsurance companies need to be able to get a handle on data on a worldwide basis,"" according to Brockmeier. ""Many companies are trying to organize their business globally so that they don't have too much coverage on any one line of business.""

Many insurance companies are faced with a dilemma because, for the time being, they are operating in cash preservation mode. ""They are retrenching and gearing up for 2003,"" says Brockmeier. However, if next year does not bring the resources needed for such an investment, ""I think reinsurance companies need to understand that these projects don't go away,"" he says. And although initiatives aimed at globally managing risk are $30 million undertakings, ""the payback period is quite short,"" says Brockmeier, who relates that two of CSC's large reinsurance customers have achieved a 25 percent return on investment as a result of recent global consolidation project implementations.

XML in Reinsurance

In addition to consolidation of global data, the use of data standards like XML is having a positive effect on the efficiency with which reinsurers manage policies. Although there is not as great a need for standards for communications among reinsurers—because, notes Brockmeier, it is a small industry and reinsurers are still building proprietary data standards among their main trading partners—there is a larger need for standards when it comes to communication between primary insurers and reinsurers. ""I think that there has been a focus on interconnectivity, not only with reinsurers' systems internally,"" says Brockmeier. ""But reinsurers can see the light at the end of the tunnel because primary insurers are finally agreeing on a standard format and they are able—in a fairly uniform way—to give data to them.""

Web services in reinsurance, says Brockmeier, are still in the proof-of-concept phase. Still, ""it is exciting because it solves a lot of interconnectivity problems for reinsurers that they've struggled with,"" he says. ""But it will probably be six to nine months before we see some things that are really useful.""

---------------------------------------------------------

POLICY MANAGEMENT SYSTEMS:

KEY TRENDS & CHALLENGES

P&C: Carriers should take steps toward consolidating their customer view and offering more flexibility to give any end-user the ability to get their job done in a secure way.

Life: Life carriers should take a staged and ""componentized"" approach towards straight-through processing in order to minimize touch points.

Reinsurers: Reinsurers must think about systems that enable them to view their global risk. Although some are sitting tight on spending until the economy gets better, the need for these types of systems isn't going away.

Health: Recent healthcare cost escalations have caused policyholder pushback that requires health carriers to focus on better underwriting.

-------------------------------------------------------------

Health Carriers Focus on Underwriting

Because health insurance technology vendors have tended to focus on developing claims processing solutions, rather than overall policy administration systems, in the past many health insurance CIOs were forced to create a lot of their own enhancements because the functionality they were seeking was not available in the marketplace, according to Janet Parenteau, director of business development for health plan services, CSC Corp. (Austin, TX).

And because recent escalations in healthcare costs have affected premiums, health technology vendors are responding to a carrier need for better tools. ""Health carriers are having to focus on better underwriting because of push-back against double-digit inflation facing premiums,"" says Parenteau. Additionally, insurers are focusing on customer self-service options and higher automation levels so that applications can be followed through electronically to the underwriting process.

Although available funds for health carriers have been squeezed by reallocation of monies to HIPAA compliance projects, Parenteau says, many health carriers actually have their initial HIPAA investments behind them. ""Now they are looking to make all of their technology investments around things like policy administration, underwriting and premium billing,"" she says. That's not to say, however, that HIPAA is no longer a topic of concern for these carriers. ""There are still HIPAA dollars to be spent, but some legislation has yet to be passed—so carriers will have to go back into applications and make changes.""

2 of 2