The Right Tools, The Right Strategy

Insurance distribution is changing, and alert insurers have an opportunity to increase sales at the expense of their competitors. Though thus far it appears that most consumers continue to want a broker involved in the sale and ongoing service, it is also evident that an increasing number of consumers are using the Internet to shop for insurance.

Direct sales carriers are experimenting with stand-alone or assisted Internet sales. Broker/agency carriers are providing consumers with Internet and call center options as well. And some carriers are finding success with group and affinity sales, often supported by functionality supplied by the carrier but embedded in the group’s website.

Self-service

Over the last several generations, consumers have increasingly come to expect to serve themselves – whether pumping gas, using an ATM, or now checking out groceries. For most consumers self-service is attractive because it affords more control. In the past, one could not conceive how consumers could serve themselves regarding their insurance policies. But, increasingly carriers are offering self-service consumer websites, with policy, billing, and claims inquiry, as well as payment, change requests and quoting. While it is not yet clear that such sites ultimately reduce carrier expenses, they do promise to generate higher customer satisfaction – and thus retention.

Carrier self-service website initiatives are not always confined to consumers and often include brokers, vendors and other business partners. By allowing the broker to perform functions traditionally done by carrier staff or supported by carrier call centers (e.g. get quotes online, submit applications and get immediate response, make policy changes, initiate and inquire about claims, or reconcile commission), carriers can off-load some of their work while also pleasing their brokers. Brokers seem especially responsive to small-business self-service when it eliminates 30 to 60 day lag time as well as carrier-induced errors.

Brokers’ dilemma

While self-service websites provide real benefits to brokers, they can also cause problems. Independent brokers often work with three or four different carriers, so dealing with multiple site security systems and user interfaces, plus the need to enter the same information over and over into each carrier site to compare quotes, can be tedious.

The CSIO insurance portal is a promising approach to giving brokers self-service with uniform workflow and single-entry. Carriers that cooperate with the portal are likely to receive more business than carriers that insist on a single, proprietary access path to their systems.

Host of challenges

Studies of both property and casualty insurance and life & health claims practice shows that carriers typically spend 15%-30% more on claims than they should. Failing to pick up subrogation is one problem, but errors and inconsistencies in claims processing are more serious. The errors result in higher processing expenses, delays and enormous customer dissatisfaction. They also make carriers vulnerable to litigation.

In some cases, reengineering the claims process is necessary to improve the system. In others, simply finding a way to consistently operate according to existing internal carrier best practices will provide significant savings, as well as more litigation protection and higher customer satisfaction. Other industry challenges, which also represent opportunities for success in a competitive marketplace, include:

Specialization. Rather than try to compete with commodity products, some carriers are looking to develop niche products aimed at specific markets. This strategy is reflected in the broader retail market as well as in everything from magazines to cable channels. Though special populations may be smaller, competition is less fierce, and potential buyers are more eager to have their particular needs met.

Geographic expansion. Though not appropriate for everyone, moving into flourishing new geographies can be an effective growth strategy. Mature insurance markets grow slowly, mostly in line with modest population growth. Emerging markets, on the other hand, can provide dramatically higher growth rates.

Back-office competence. Traditional insurance models have carriers working directly with retail channels, but that may not be the right strategy for everyone. Some carriers are more skilled in non-distribution areas such as underwriting, claims and asset management. Rather than compete at all nodes along the product life-cycle arc, they choose to leave marketing, sales and distribution to more effective entities.

Tech & strategy

Not every carrier should adopt the same business model and distribution strategy. It also appears increasingly less likely that any insurer, even the largest, can effectively be “all things to all people”. Historic and conventional division of labor arrangements, with brokers, wholesalers, carriers and reinsurers each playing specific, predetermined roles, does not afford the flexibility needed to optimize financial assets and intellectual capital and to respond to changing consumer needs and expectations.

Expanding distribution methods, offering self-service, acknowledging broker multi-carrier needs, cauterizing claims leakage, building product specialization, expanding geographically, and specializing roles are all legitimate strategies. Though not a sufficient condition for realizing a particular carrier business strategy, technology is clearly a necessary one.

The core

When is it appropriate to replace an existing core system – for instance, policy administration, claims administration, or billing? Because core systems are so crucial to the carrier’s operation and likely required enormous effort over a long period of time to perfect, they cannot be discarded simply because more attractive technology is now available. Of course, if an existing core system simply makes it impossible to implement a key business strategy, then replacement may be justified, even required. New core systems are more likely appropriate for new product initiatives or geographic expansion.

However, though much of the insurance technology focus has been on core systems, it is clear that in many cases real opportunities for technology lie elsewhere. For instance, it may be possible to provide website distribution, self-service functionality and CSIO portal support by integrating new software with legacy, core systems without compromising or radically changing them.

Business process outsourcing or less dramatic application service provisioning, now practical and attractive because of the Internet, can make a great deal of sense for insurers that are testing the waters, or that want to expand in insurance but not technology areas. Workflow overlays to existing automation can treat claims leakage, as well as the more general problem of operational inadequacy. Business process management can provide carriers with insight on how and to what extent their business strategies are being realized.

Getting there

A difficult insurance environment does not excuse the need for good business performance via appropriate strategies executed, in part, with the right technology. But, where does the right technology come from, and what does it look like?

In the past, carriers had two choices: buy package software and conform to it, or develop custom software – by software coding or with more advanced insurance technology toolkits. In the first case the carrier benefits from a vendor’s past experience and economies of scale – but sacrifices flexibility. In the second case, the carrier can have just what it wants but must expend a great deal of effort to have it.

What may make most sense today is a solution that combines pre-existing standard components, for 90% of processing shared by all carriers, with toolkits for creating and maintaining custom modules. And finally, since carrier needs are not static, the technology environment should make it possible to manage and preserve the intellectual capital embodied in the rules, procedures, algorithms, tables, datasets and other elements of the technical model of each carrier’s operation. Times are tough, but technology is becoming an increasingly necessary tool in maintaining a competitive market position. The key is making the effort to find and use it.