For insurers, technology does not operate in a vacuum. Indeed, any discussion of the top technology trends of the year would be deficient if not addressed in the context of the larger forces at work upon the industry.
While the financial crisis that savaged other pillars of the financial services sector largely bypassed the insurance industry, the reverberations were felt keenly by insurers, especially those long accustomed to padding premium income with investment income. This hit, coupled with the lingering soft market, forced carriers to look within and redouble efforts to run more efficiently.
"The pressures on the industry in the last year are unprecedented," says Rick Roy, CIO of Madison, Wis.-based CUNA Mutual Group. "It has required CIOs to really examine if there are technologies that can give them breakthroughs in their service models or cost structures."
Roy says insurers have to exercise rigor in spending, but still take advantage of things that can add business value. "Nobody has the discretionary funds to go chasing the next shiny toy," he says.
So, with technology budgets tight, where are dollars best spent? Michael Fergang, CIO at Columbus, Ohio-based Grange Insurance, says carriers have focused on making their IT operations leaner. "People are trying to get more efficient, and take that spend you've recouped and apply it to more thriving business opportunity," he says.
Roy says he also sees the industry adjusting to new economic realities by focusing on finding incremental opportunities to better service both internal and external customers. "There's definitely a trend toward speed-to-value," he says. "There's certainly less of an appetite for the intergalactic, long-term projects that take forever to return value. That's a healthy thing."
Despite these financial strictures, opportunities abound for insurance carriers to use leading-edge technologies in house to help them better run their businesses and interact with customers. CUNA Mutual recently adopted voice signature technology in a business-to-consumer call center. The technology enables the carrier to close a transaction over the phone, and save the voice imprint directly into their policy administration system. "Close rates are dramatically higher when you have a caller engaged on the phone," Roy says. "We can quantify the close rates and revenues generated using that technology. It's been a very nice win for the business, but we used pretty cool technology under the hood to make it happen. It differentiates us, but at the end of the day, it's a productivity tool."
Another consequence of the macroeconomic climate is increased interest in delivery models that eschew up-front capital investments, such as Software-as-a-Service (SaaS) and cloud computing.
"SaaS can be a strong model, but it may be the most over-hyped," says Roy. "It's the service bureau model of the 1970s reincarnated. It was a good idea then, and can still be a good idea today, but only if the value proposition is there."
Jeff Goldberg, senior analyst, at Boston-based Celent, says while the well regarded customer relationship management (CRM) offering from Salesforce.com shows the potential of SaaS, the model may not translate as well to other parts of the enterprise, especially complex areas such as policy administration.
"When you are talking about SalesForce, there's a lot of carriers that don't have a CRM system in place-they've been struggling without it, or using spreadsheets," he says. "They're essentially starting from scratch. With policy administration, you still have the old systems and all those old policies to deal with, and converting is often as expensive as implementing the new system."
Goldberg is equally circumspect about the near-term prospects for cloud computing. "We're seeing the push around cloud computing coming more from vendors, analysts and journalists than from the carriers themselves," he says. "I won't say it will never take hold, but it's going to be a long time coming."
Grange's Fergang is more bullish, but concedes widespread deployment is still a few years off, predicting adoption won't start to pick up until 2012-2013.
"It's a great opportunity to manage spikes in your business, and offload fixed costs and make them variable," he says, but adds that the primary use will be for non-mission critical functions such as e-mail servers. "You are not going to see people hand over the keys to the kingdom."
Citing issues around audit compliance, Roy too foresees the eventual impact of cloud computing limited to applications that carriers don't need to run or support within the enterprise. "You can never say never, but when I think of core underwriting, claims and policy administration platforms, I just don't see it," he says. "Your ability to get your arms around risks and mitigate them is better inside."
Yet the debate whether to move applications "out to the cloud," obscures larger issues, says Brian Wallace, CTO for the Financial Services Group of Falls Church, Va.-based CSC.
"Cloud computing will eventually impact every aspect of how IT services are provisioned and consumed," Wallace says, but hastens to add that he's not suggesting everything that is currently done in internal data centers will someday be done by a cloud provider such as Amazon. "When I think about cloud computing, I think about the characteristics that make something cloud-like: elasticity, speed-to-value, rapid or even self-provisioning."
Accordingly, Wallace says he expects data centers to eventually internalize central principles of cloud computing, such as flexibility and ease of deployment.
"Cloud computing is an example where you are not inventing anything new, but just exploiting proven capabilities and concepts at a higher level," he says. "It's a natural evolution, so I think we'll stop talking about cloud computing in a relatively short time."
In that sense, cloud computing dovetails with ongoing efforts to virtualize hardware and to establish service-oriented architectures.
"In the end, where the blinking boxes are located doesn't matter that much to us if you properly secure it," acknowledges Roy.
Wallace says the ascendancy of cloud computing mirrors larger philosophical and cultural shifts in the data center. "Ten years ago you could find little pockets of people that cared about IT and applications architecture," he says. "Now it's really come to the forefront. Concepts that few people in an organization might have understood, like abstraction and decoupling, are now in the mainstream vernacular."
Learning from the Consumer
Another trend that revealed itself this year was the increasing consumerization of IT. Forward-thinking insurance technologists can now look to the consumer market for inspiration. "In the past, the enterprise world has been the locus of innovation," Wallace says. "There's a smorgasbord of useful technologies incubated in the consumer market. Now the enterprise has to step back and figure out how to use it."
Indeed, carriers are now looking to leverage Web 2.0 technologies that first came to prominence in the consumer marketplace. However, Wallace cautions that merely mimicking a consumer technology is not enough. Instead, a carrier should look beyond the application to the concepts underlying its success. "It's not about doing Facebook in the enterprise," he says. "It's about figuring out how we can self-organize around things that matter-a customer, a task, a work item."
Celent's Goldberg contends that social networking tools are best suited for internal, collaborative use. For example, social networking tools could enhance the interaction between insurers and producers. "The relationship between underwriter and agents is where I think this will take hold at a larger level," he says.
Goldberg is less impressed with carrier efforts to use social networking tools as a way to interact with customers. "There are a few carriers taking advantage of social networking from a marketing or branding perspective, but we haven't seen many transformational uses."
What's more, use of social networking externally brings issues about governance and message control to the forefront. "There's not a carrier out there that's not a little afraid that someone will start [Tweeting] about a bad experience, and it will explode into a full-fledged PR nightmare," he says.
Goldberg says the barriers to transformational use of social networking within the enterprise are largely cultural and structural. "The technology is easy to do. It's more about business decisions-who is going to be using it."
Wallace says another lesson vendors and carriers can glean from the success of applications such as Facebook is usability. "In a short period of time, 250 million people figured out how to use that application on their own," he says. "That's going to have a lot people re-thinking the fundamental tenets of usability. More and more applications will start looking more and more familiar."
Mobility is yet another area where the enterprise is looking to the consumer space for inspiration. Insurance-specific applications are beginning to emerge for popular mobile devices such as the BlackBerry and the iPhone. Carriers can leverage mobile devices anywhere there's a need for speed or timeliness, such as first notice of loss.
"There are interesting application areas [for mobile devices] in insurance," Roy says. "They can accelerate the information flow."
Popularity in the consumer space does not automatically translate into widespread adoption in the enterprise. In the case of the iPhone, a lack of encryption options may hamper adoption, Roy predicts. "I can't secure it to the standards we've set for our business."
Nonetheless, the increasing use of mobile devices has broad implications for IT. "The lines between mobile and desktop applications is getting blurry pretty quickly," Roy says.
Elsewhere, the once-clear boundaries inherent in core systems are also becoming hazy. Goldberg sees a trend toward a greater integration of business processes as vendors offer more integrated products suites for core systems. "It's becoming harder to distinguish individual services because the trend has been for vendors to create more end-to-end type products," he says. "Depending on who you are talking to, policy administration might include things like billing, claims, commission or reinsurance."
What's more, products are becoming more configurable, requiring no code writing on behalf of the carrier. This means implementation time frames are beginning to shrink. Additionally, the demand from carriers that vendor solutions be interoperable is having ramifications, as it has allowed some carriers to go with a best-of-breed approach while still maintaining an integrated solution.
Goldberg says one result of this proliferation of on-demand offerings and the rise of the Web as a platform is a more level playing field between large and small carriers. The advantages of having big iron and economies of scale isn't what it was years ago, and "everyone is going to have access to servers on demand," he says.
What will carriers do with this newfound number-crunching capability? Goldberg predicts wider use of predictive analytics and business intelligence by smaller and mid-sized carriers.
As market conditions lead carriers to put a higher premium on retention, Fergang sees a trend of using a blend of predictive analytics and CRM tools to get a better view of the customer. "It puts a lot of pressure on firms that maintain multiple administration systems because it makes it much harder to have a single view of the customer," he says.
Looking ahead, one conundrum large and small carriers alike will have to confront is the launch of Microsoft's latest operating system, Windows 7.
CUNA Mutual's Roy says while some elements of the new operating system offer high value for the enterprise, such as security and encryption, it is causing a reassessment of options.
"What the desktop looks like for employees and customers is an issue we're thinking about," he says. "Are there new ways to [adopt Windows 7] without it residing on every desktop? Does the desktop thin out, and can much more of the horsepower then reside on a cloud of some form?"
Indeed, while the system requirements for Windows 7 are the same as for Window Vista, organizations that skipped the Vista upgrade cycle may find themselves with some computers under-powered to run Windows 7.
Thus, virtualization, which companies have deployed to great effect in the server space, may become more prevalent on the desktop. "Virtualization is nothing more than getting more efficient at using capacity," Roy says. "Only a small fraction of employees need much computing power. Actuarial and investment are areas that come to mind."
Looking at IT, one may conclude that technology raises as many questions as it answers. This isn't necessarily a bad thing, says Fergang. "It's thought leadership that will ultimately differentiate companies."
This article can also be found at InsuranceNetworking.com.
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