Winning in An Online World

The Internet has been positioned as the road to glory for the insurance industry, promising the delivery of lower cost operations and distribution, higher underwriting quality, and enhanced service value to its brokers, but how can companies achieve all this? Online inquiry is a step in the right direction but does not deliver material business benefit. In reality achieving an effective e-business strategy is more often a trial and error process where the ability to change and evolve easily and at low cost permits as much learning as it does strategizing.

All stakeholders to an online strategy may not have the same point of view. For brokers, the challenge is that these systems could be seen as a threat. Brokers fear they will lose business to direct sales models. For insurers, there are enormous challenges in even getting their legacy systems in shape to support online business. Yet, doing business online with real-time underwriting for new business and policy change is the best answer to reducing costs, increasing speed and improving the consistency of how rates and underwriting rules are applied.

With new channels emerging and the Centre for Study of Insurance Operations (CSIO) Internet portal around the corner, how can we accommodate these different needs and win the “online race”? The answer is to embrace new generation technology from a strategic perspective, to address the expectations of each community with the capability to learn, make changes, and evolve easily.

Strategy evolution

The good news is that many companies have learned that an e-business model that creates a new sales channel undercutting agents and brokers is not ready to deliver benefits. Most policy systems were not designed to support sales and service issues, rather to process transactions.

Exposing these systems to the web cannot replace the value that an agent and broker brings to close, up-sell and cross-sell products. E-business is developing more with the customer’s experience in mind. Business to business models can provide support to the sales force for guaranteed quotes, guaranteed offers fully underwritten and product, price and underwriting explanations while also offering online accessibility to customers.

Broker view

Current channels of communication between brokers and insurance companies use a combination of faxes, email and electronic data interchange (EDI). But to really improve things, the critical interconnection between broker and carrier needs to add real value for both parties. From the brokers’ perspective, this means helping accelerate the success of their business by supporting their main source of differentiation: customer service.

Being experts in sales, brokers should not have to be experts in rating and underwriting new business, or in renewal and policy change transactions. The rules and processes that define and control how insurance coverage is written are different for each insurance carrier. Through built-in edits and filters insurers’ systems prevent certain combinations of products, endorsements, rates and deductibles. Yet up to 80% of broker-to-insurer transactions contain errors. Insurance companies invest time and effort in correcting only the errors with the highest impact to risk and premium. The end result is often frustration for the broker, pain for the client, potential loss of business, loss of profit and higher costs for all parties involved.

Value to the broker, then, is defined in terms of support from their insurance carriers to help them sell and service clients quickly and accurately, priced fairly while generating underwriting profit. Tools to permit a broker to easily explain transactions to clients and reflexively interact with underwriting and rating systems are the answer. Success requires companies to work with their sales force to learn, evolve and make changes to best suit their needs.

Company view

Insurance companies cannot go online with brokers or participate in initiatives like the CSIO portal without considerable change to their systems. Most legacy systems actually do what they were designed to do quite well. Since most selling and policy change activities of brokers does not include underwriting and validating, considerable duplication of broker activity takes place in insurance company back offices to get accurate and complete customer data. If underwriting and validating is performed largely manually, it adds even further costs to the distribution of insurance products. Going online then would at best provide a better transmission of the same information or inquiry capability without policy systems performing more tasks than they were designed to.

Of course, there are many technologies that can provide access to the data in mainframe systems. This has made it easy for a number of insurance companies to take their first steps to e-business — offering basic inquiry capability via the World-Wide-Web (WWW). However, with “inquiry only” the value to the broker is low and cost savings are minimal.

The next logical evolution is to allow for web-based new business and policy changes. As underwriting rules evolve to become more automated the ability to make business rule changes easily and at low cost becomes absolutely critical. This has become one of the real barriers to entry for web-based solutions, as these systems can be so costly both to build and maintain. The problem, in a typical insurance company, is that the rating engine, the policy system, the access methods and the website will all use different technologies with proprietary languages that must be maintained by IT. When rules or rates change, many systems may need to be updated simultaneously. Different teams with different skills are required to reprogram the many parts of the overall system within an IT project. This complexity has been a significant obstacle to companies going online and participating interactively in the CSIO portal.

Next “generation”

The technologies employed by companies today come from various eras from the 1970s to the 1990s, with each new generation of technology providing more flexibility and functionality to manage information and process transactions.

The monolithic line of business systems that were designed in the 1970s still provide reliable simple transaction processing with green screen user interfaces. These systems have been developed and maintained with hard coded programming languages. The 1980s brought the client server environment, a method where centralized servers can house the data allowing desktop computers to retrieve, consume and modify it with their own programs. The user has more applications available with this environment. These systems still provide utility where multiple applications can be used to manage information and process transactions. The applications use hard coded programming on the client and server sides.

The 1990s brought component-based software that allows the centralization and re-usability of application functionality as well as data. Greater functionality was achieved as multiple independent applications can be integrated to access server programs and data. These independent software services can be accessed by multiple user interfaces. Both the component software and the serves use hard coded programming languages.

Although each decade brought infrastructures allowing more flexibility, computing speed and functionality the same problem exists: the multiple systems use different technologies with proprietary languages that must be fully maintained by IT. When changes are required to underwriting, product and rating rules, many systems need to be updated simultaneously. Different teams with different skills in an IT project format are required to reprogram the many parts of the overall system.

The “next generation” has been specifically developed to solve this high cost of maintenance issue. As such, “definition driven development” (D3) separates the rules that run an insurance business from the transaction processing technologies that underpin them. The rules are defined and maintained in data, not in p rogramming languages. These programming languages are proprietary to their compiler and are costly and complex to change. Building the business rules separately from their implementation, in an open XML-based platform allows business users to more directly maintain their own systems.

The D3 path

The answer to the high cost of maintenance problem lies in both the strategy and in the technologies used. In the past, the insurance industry has often found itself building capabilities on a tactical basis to fit specific needs: automate underwriting, get policy systems on the net, deliver online regulatory submissions, etc. If tactical requirements could be woven into one strategic view, the costs of implementation and maintenance would be greatly reduced.

From a strategic viewpoint, the first thing to do is to separate the rules that run an insurance business from the transaction processing technologies that underpin them. Underwriting rules, in particular, should not be hard-coded into inflexible, monolithic systems that are both costly and complex to change. If rules are defined separately from a specific implementation, they can be transformed for use in many applications. The functionality is built in a reusable fashion where changes can be made centrally with all dependant systems updated automatically and simultaneously.

Building the business rules separately from their implementation, in an open XML-based platform, would allow business users to more directly maintain their own systems. XML represents data in an open and non-proprietary manner — it is not specific to any single technology provider. This means that it can be read on any platform, accessible by anyone and is not owned by any vendor. The D3 methodology permits technical people to focus on the technical aspects of development and the business users on the definition of the business needs.

All distribution channels, both traditional (e.g. fax, paper, EDI) and new (such as websites, the CSIO portal and other e-brokers and emerging portals) can be implemented from the same rules to quote, bind and process new business and policy changes. This approach could help automate underwriting, back office verification, analysis of online reports, content generation for websites, regulatory data submissions (i.e. uninsured vehicles), and online manuals and publications. CSIO portal participation becomes much less complex, more accurate, easier to maintain provides a foundation for greater functionality in the future.

Are insurance companies winning the race to go online? Not yet. But by gaining the capability to change and evolve easily and at low cost with a strategy that includes new generation techniques and the use of open standard XML, insurers can achieve lower costs and greater profits in the e-business age.