A decade of challenge: the changes in some businesses over a decade may be subtle, but you can't say that about the insurance industry. From the Web to predictive analytics, it's been a decade of change, and the next decade looks to be just as exciting--and different.

We may not notice all the changes that have taken place over the last decade unless we dial the clock back to 1999 and remember what life was like then for insurance IT. The Internet was big--for retailers--but insurance company Web sites were marketing devices rather than a tool to conduct business. Insurers collected tons of information about their policyholders, but they didn't know what to do with any of it.

Today, as Tech Decisions celebrates its 10th anniversary, we sought the opinions of IT leaders and industry observers to give us some input on how far the industry has traveled in the last decade and what the next 10 years hold for insurance IT.

Srini Koushik, chief technology officer for Nationwide Insurance, believes the biggest change he has seen in insurance technology over the past decade has been the industry's push to catch up with other industries in the use of technology.

"Insurance always has been behind the curve from an IT investment point," says Koushik. "For the last 10 years, a lot of focus has been on playing catch-up. Even if you think about the Web, early adapters of the Web in retail already were there in the second half of the 1990s. Many of the financial services companies barely existed in that space."

Vivek Mehra, vice president of global financial services with Keane, Inc., agrees insurance has been a laggard in technology, but he has witnessed some movement, particularly in the last five years, to replace old mainframe systems, such as policy, billing, and claims systems.

"There is a huge operational risk riding on these systems," says Mehra. "Companies that are trying to grow through acquisition or through new states or bringing new products to market are discovering these technologies don't scale."

BRAND IDENTITY

Beyond playing catch-up, Koushik indicates Nationwide has looked for opportunities where it could establish a name for itself. In particular, the company has put a great deal of effort in the claims process. "It is the most important point--as a touch point--in the whole insurance process," he says. Koushik notes Nationwide was the first to put mobile vehicles into hurricane-affected areas to handle claims on the spot.

"We started doing that in 2003 and quickly realized people were coming to us," says Koushik. "So, in 2004, we actually put [the mobile claims office] on a trailer and added supplies such as diapers and clean water. You had claims adjusters in the front of the vehicle, and then you had our volunteers helping from the back of the vehicle. It's an area where we could selectively get better and go ahead of some of the [competition]."

Nationwide began its shift a few years ago, according to Koushik, as company leadership came to the realization IT is not a back-office function and can be used for a competitive advantage. "We started getting more targeted about our investments so we can make specific enhancements and get some really good benefits," he says.

As an example, Koushik points out in 2006, Nationwide was ranked by one survey as having the ninth best insurance Web site. A year later, Nationwide had moved up to fourth in the survey, and in 2008, the Web site was ranked third in the industry.

"That didn't happen by accident," Koushik says. "It happened because our business invested in that channel. We saw growth rates in the direct channel. Instead of taking the shotgun approach to investing in IT, we took a targeted approach not just to catch up but to be in the top three."

It took a heavy investment to reach that level, Koushik remarks, and the company intends to retain that position. "When you think of the two carriers ahead of us--GEICO and Progressive--they are predominantly direct carriers," he says. "They do more business in that channel, so they spend a lot of money on that. We're a multi-channel company. Our intent is to not to take them on in their strongest space. We know many of our peers want to be in that top number three or four spot, so we are going to have to spend money to stay there, but we are not shooting to become number one or two in that space."

BIG CHANGES

Larry Danielson, principal with Deloitte Consulting, believes the Web allows carriers to address operational efficiency. "The number of people who are employed today by insurance companies is dramatically different, and most of that is attributed to technology," he says. "We're not where we need to be just yet integrating all those applications, but operational efficiencies are clearly there."

Addressing applications more specifically, Michael Fergang, CIO of Grange Insurance, can't fathom an insurance entity today without a comprehensive business intelligence or data warehousing strategy. "At Grange, every decision we make is driven off of information--from product design to the propensity of someone to buy a certain endorsement," he says. "We have models that will tell us what makes a good new-agent appointment. BI is in the fabric of what we do."

Danielson agrees with the increased use of information and the application of analytics. "The applications we are able to bring today on the information we've never used before gives us business information where we can apply insight," he says.

Currently, that is being done in point solutions, but Danielson believes the future lies in bringing that information together. "With the application of analytics, the [ability of] new tools moving information around is improving--how we make decisions, how we are proactive in what we do," he says. "This is where we need to be in the future-so our business leaders can do what--if scenarios through the use of analytics, and we can make better decisions and actually avoid [mistakes]."

DISTRIBUTION CHANNEL

The distribution channel at Grange uses independent agencies, and the way the carrier makes it easier for agents is through the Web, explains Fergang. Years ago, Fergang speculates, the carrier could have entertained using thick-client functionality to connect with agents. However, he says, "the capability of the browser, Web 2.0 features, the ease by which we introduce change to how we do business with them today and how they do business with the policyholder--that never could have been satisfied with a thick client. The Web has afforded us a great distribution vehicle and a mechanism that allows our model of doing business to change."

Bill Arney, manager of workflow development, Great American Financial Resources, Inc. (GAFRI), agrees the biggest change he's seen in the past decade has been the use of the Web. "It has given agents and policyholders access to information they didn't have 10 years ago," he says.

As a policyholder himself, Arney likes to log on and get to information when he wants it without getting on the phone. "It also allows users to make changes online, which is more prevalent today," he says. "Sometimes [customers] having access to information means more phone calls [to customer service], but [the Web] puts the information in their hands."

Kevin Jones, application development specialist for GAFRI, has seen a lot of improvement with business-to-business communication--electronic information sharing. "In the past, that took quite a while to compile because it was manual," he says. Now, responses are received usually between 24 and 48 hours. "It has helped our throughput and our processing," says Jones.

Another aspect of distribution channel system improvement is found in the way carriers deal with their independent agency force, suggests Mehra, adding such questions as where are the more prosperous agents and how do you keep them happy are vital in today's business.

"Keeping the best agents happy points to having a better agent experience online--being able to provide the analytical and marketing tools and real-time commission status to make it attractive for an agent to work with an insurer," says Mehra. "That has become a prime focus, especially since businesses have shrunk. People are trying to get new business, and they are turning to their more profitable agents to help them do that."

Mehra also sees an increased focus on understanding IT needs to enable growth, especially from an M&A perspective. "The larger companies are looking to become full-service providers--not just insurance but wealth management, banking, and annuities," he observes. "The regional and smaller carriers are differentiating themselves from the global players by being more local and more responsive. In both cases, they are looking to use IT as an enabler."

NEW DIRECTION

Fergang realizes a regional insurer such as Grange can't compete with the advertising dollars being spent by direct carriers, he says. Nevertheless, he indicates the social media space has potential for a regional company that sells through agents. "The integration between Facebook and Twitter is fun," he points out. "You are seeing how it drives activity. The whole social media and how these companies are trying not to be siloed--they are trying to figure out how they best play with each other--is really interesting."

Grange deals with 2,200 agencies, and Fergang believes the agents look to their carriers for guidance on how best to take advantage of some of the newer technology.

"There are some agents playing out there, but they don't have the sophistication or wherewithal to figure out how to integrate Facebook, MySpace, and Twitter together," he reports. "We need to help them figure out how to do more than just marketing. A lot of carriers are just doing marketing [through social media] right now."

As the industry looks to the future, Danielson asserts insurers need to address the reputation of the industry. "Insurers have to think about how the applications can help better the way a company is positioned and thought of from a stakeholder perspective--the public, the government--and I think as much as people would like to say this bailout won't change us too much, I think it will be a fundamental shift in the scrutiny with which taxpayers and people look at companies now," he says.

There is a more work to do, states Danielson. "The industry has done an amazing job in improving its operations, but that story has not been told," he says. "If we look at the operational efficiencies that have happened, we have only scratched the surface. There is a high degree of automation that still has to be applied. What people need to be able to do is get comfortable with the automation. It will further reduce the amount of people who are required, but it will improve the quality of what happens."

Many administrative tasks will go away in the next few years, continues Danielson, and with Web enablement, more power will go to the end consumer and other third parties such as agents and brokers.

"A lot of the decision-making may shift," he says. "If you start to decompose the decision process, it will be pushed away from the home office. That will not take the control away, but it will require more guidance, leadership, and more business knowledge coming out of the home office to understand analytics and the trends in business and be able to make decisions. Controls need to be at a higher level. They can't encumber rapid change."

TRADITIONAL ISSUES

Regulatory issues are a way of life for insurers, Koushik believes, and that won't change any time soon. "We know given a lot of things that have happened in the financial services industry of late, there is going to be more scrutiny," he says. "A big chunk of that is well deserved."

Insurers need to figure out a better way to deal with these issues, though, he comments. In the past, insurers treated compliance issues as a project that needed to be done rather than an ongoing issue. "What we've started to look at is [compliance] will be a normal business operation, and you do that with the same rigor as in other spaces," Koushik says. "For example, if we spend five percent of our time on compliance and security issues on a regular basis, how do we do the same job with 4.5 percent of our time next year? You look at automation and lean management processes to simplify how we do that."

Based on the government's involvement in business in the past six months, Fergang predicts the demands for regulatory compliance within the insurance industry are going to grow. "You have to get [compliance] done and get it done well," he says.

Furthermore, Fergang anticipates the industry is headed for some unchartered waters. "I can't fathom what's going to happen in the next three to five years relative to regulatory reporting," he indicates.

Danielson also cautions the industry has a fair amount of work to do in the regulatory area. "If you look back 10 years ago, a lot of [compliance work] was manual," he says. "Today, we have a number of point solutions, but the way we do regulatory compliance and view risk in aggregate is not where we need it to be."

The regulatory area has huge opportunities for insurers, adds Danielson. "There is a mindset that needs to change," he says. "[Insurers] view regulatory compliance differently in terms of where to spend, but as companies institutionalize regulatory into their day-to-day jobs, it will change."

UNSOLVED ISSUES

The insurance industry has been wrestling with legacy modernization for the last decade and then some, Mehra maintains, but carriers have not shown the speed and urgency still needed to make this issue go away.

"Insurers will continue to struggle with this for five to 10 years because the systems are humongous and there is just so much imbedded in them it will not be a quick thing to migrate off them," says Mehra.

Fundamentally, the issue comes to ROI, suggests Mehra. Some of these older systems, such as billing, are commodity systems, so when IT suggests improvements, the business side wants to know whether the company is going to earn any new premium as a result of this project.

"The answer is no--you are only going to safeguard the premium," says Mehra. "It becomes a difficult sell. You have to find creative ways of modernizing the legacy. I don't think the issue is going to go away."

IT OF THE FUTURE

IT departments of the future will operate differently due to the technology skills currently being developed by tomorrow's IT staffers, predicts Fergang. "I think the demands of the younger generation, who are savvy, will exceed what we can think about today," he says. "I look at the developers we have on staff now; if we don't keep them engaged on newer technologies, they get restless."

Grange affords these IT workers the opportunity to dabble with some of the newer technologies. "A lot of the Web 2.0 features with mashups and Flash and Silverlight are almost like a given for some of them," says Fergang. "They have the propensity for wanting to do it, and we give them the opportunity to play and see how it can add value to our business."

The continued development of technology almost certainly will change the way IT departments operate, adds Fergang. For example, "let me put my security hat on," he says. "I don't want [business users] to have access to Facebook and MySpace, but we have to find ways to allow it because this is their network. This is how they interact with each other-not just at a social level--but how they get information. They are asking peers technical questions--not proprietary things. So, even the social media are no longer just purely social."

Koushik believes the older generation of IT workers is being influenced by what the younger generation is doing today, particularly with social networking. "Ten years ago, an insurance company would look at [social networking] as a waste of time," he says. "A lot of our policies are built around that older mindset."

Nevertheless, Nationwide, like other businesses, have challenges to deal with, Koushik states, particularly in the area of privacy. "We have to come up with an innovative solution on how we can leverage the technology, embrace it, and not ignore it and hope it goes away, because it's not going to go away," he says.

IT departments in the next decade will be run differently than today,

Danielson expects, owing to the technical sophistication of younger workers. Yet insurers need to remember their experienced workers have tremendous business knowledge, and Danielson feels that knowledge largely has been untapped.

"The challenge is to remain technically savvy, leverage business knowledge, and not be intimidated by the technology but to embrace it," says Danielson. "People with less business experience will leverage their technical expertise and learn the business; on the other side, people who have more business experience have to upgrade their technology capabilities."

It's possible parts of IT will overlap into the business side in the coming years, speculates Arney. "We've seen it here at GAFRI," he says. "Departments such as quality assurance are looking at how we can build our requirements by looking into the business to see who would make a good requirements analyst."

The wall between business and IT will be replaced by a dotted line, predicts Arney. "Areas such as DBAs and infrastructure will continue to have more of a solid line between IT and business, but there definitely are areas that will have overlap," he says.

MORE CHANGES

Arney anticipates more usage of handheld devices and mobile technology in the future. Currently, through a GAFRI Web site, agents can upload e-applications, and GAFRI can import them for processing, he relates. "I think we will be moving toward hand-held devices and allow applications from your iPhone," he says.

Nationwide is already there, according to Koushik. Recently, Nationwide became the first insurance company to launch a mobile application for the iPhone. If a Nationwide policyholder has an iPhone, the customer can use the GPS locater to point out the accident site, use the iPhone camera to take pictures, and then start a notice of loss on the device.

"Even two years ago, you would have asked, How can we put this on the Web?" says Koushik. "Even though iPhones have only 10 percent to 15 percent of the mobile market and our customers all may not have iPhones, making critical transactions more accessible to customers is a huge deal for us."

Jones points to the pervasiveness of the BlackBerry as proof of the coming mobile surge. "Even though wireless and mobile have been around for a while, I think mobile is going to be like the Internet," he says. "It really is starting to come into its own and help us be more productive. I think that's where we'll see the huge advances over the next five years."

Special note: The author of this anniversary article (and literally hundreds of insightful and thought-provoking others in the magazine) has been writing for Tech Decisions since its inception.

JUNE 1999

"With today's technology, the driving point is access-anywhere anyplace, any time-to core information. [Agents] need what the Web has to offer plus the enabling technology."

--Richard Birkenfeld, senior RMIS advisor, Deloitte's RMIS/Lab

AUGUST 2000

"Systems can incorporate the mental processes of a skilled underwriter. It can take the black-and-white stuff and do the underwriting automatically by reading and analyzing certain numbers. It also can identify gray areas where the underwriter can devise solutions."

--Joe Harrington, communications manager, the American Association of Insurance Services

DECEMBER 2001

"Speed to new business markets is crucial. We've always done specialty development, but choosing an outside vendor is not a risky move from an IT perspective. It's a necessity of the business."

--Mary Scavarda, CIO, Argonaut Insurance

JULY 2003

"You take all the business drivers and key indicators of performance-particularly the long-term strategic plans of the organization-match them up, do a gap analysis, and find out where the major pain points [of a legacy conversion] are."

--Rod Griffin, director of insurance systems, WorldGroup Consulting

NOVEMBER 2004

The [content management] solution we were trying to develop would allow access to policies from the producers' desktops. It eliminates] the three-to-four-day mailing process per policy when it got printed."

--Doug Ackerman, lead systems engineer, Fireman's Fund Insurance

JULY 2005

"At the time [Grange Insurance Group] began outsourcing, a number of people, particularly developers, were threatened. The media was propagating all these outsourcing issues related to 'millions of jobs going away.' Had we brought in a group of consultants who were not from a company in India, I don't believe it would have been as difficult."

--Ralph Carlile, CIO, Grange Insurance Group

10 for 10

Top 10 Technology Trends 1999-2009

As Tech Decisions celebrates its 10th anniversary, the editors have selected the 10 top technology trends the insurance industry has experienced over the last decade. Here they are with a few thoughts on each from several leading industry analysts.

1 The Web

Ten years ago, the Web, as we know and love it, did not exist in the insurance industry. Today, points out Larry Danielson, principal with Deloitte Consulting, it has become the way many insurers do business, not only from a distribution standpoint--the way many insurers sell their products--but the way people actually gain information. "There was a void 10 years ago," he says. "The Web has filled the void around direct communication. Policy administration and claims are Web-enabled applications that didn't exist before. It's opened up whole new ways for companies to process business."

2 Content Management

Ten years ago almost all content was managed via paper and produced manually, recalls Karen Pauli, research director at TowerGroup. "The expense was enormous, and access to content was very labor intensive," she says. "Today's content management technology allows content to be an enterprise asset without the access constraints of old." Pauli believes the definition of "content" will continue to unfold as wikis, blogs, and instant messages drive information into carrier operations. "Enterprise content management will form the base for future knowledge management systems, which will be transformational for carriers," she says.

3 Predictive Analytics 

The blending of predictive analytics engines along with business intelligence and data strategies have changed the landscape of the insurance industry, according to Deb Smallwood, founder of SMA. "Insurers now are able to align the right product to the right customer to the right distribution channel; expand risk appetite and price with more precision; process, adjust, and report claims more timely and thoroughly; and manage financials in real time looking forward rather than through the rear-view mirror," she says. "This is only the beginning of the infinite possibilities that can be achieved by leveraging these tools and our internal and external data sources."

4 Enterprise Risk Management

Before the acronym ERM existed, IT's role in this arena began as availability, continuity, and disaster recovery initiatives, explains Rod Travers, senior vice president of Robert E. Nolan Co. "ERM has evolved to encompass the realm of corporate risk management, which includes liability protection, people and behaviors, process design and adherence, operations resiliency, technology, finance, compliance, and perhaps more, depending on how you define ERM," he says. "IT's role today is to: a) provide a reliable, resilient technology infrastructure; b) enable the organization to apply the right technologies to support ERM; c) maintain a vigil on evolving ERM technology solutions, and implement those that materially improve ERM programs."

5 Disaster Recovery

Prior to the September 11, 2001, attacks on the World Trade Center and the Pentagon, disaster recovery was all about making certain computer systems were backed up at a secure, off-site location, according to Pauli. "This was an IT project, and line-of-business heads were not involved," she says. "Business interruption really was not on anyone's radar." The events of 9/11 illustrated the degree to which businesses have to establish alternatives for data access, work-site locations, service access, and hardware, adds Pauli. "Hurricane Katrina reinforced the imperative everyone--from agents and brokers right to carrier home offices--must plan for large-scale operational shifts to alternate locations, including workers working out of their homes."

6 Outsourcing

The development of talent within IT operations has been a major improvement for insurance carriers, Danielson maintains. In particular, that includes the arrival of outsourcing. "Ten years ago, technology companies were saying they didn't have enough talent," says Danielson. "There are a lot of very smart folks throughout the world, and we can't be myopic by looking just at things in the United States. As we looked at people who can do things in all countries of the world, we started looking at 24/7 applications of talent. As you are able to aggregate people with certain talents, we see the advent of centers of expertise popping up through companies that have set up operations in different geographies."

7 Business Process Management

BPM has become a natural fit for the insurance industry, points out Matt Josefowicz, director of insurance for Novarica. The two core processes of insurance--underwriting/issuance and claims--are complex, multiparty processes that require accessing and interacting with a wide variety of documents and data. "Optimizing those processes and making them more transparent to managers, distribution partners, and customers is key to creating efficiencies and improving service levels," he says. "Few insurers really have adopted an enterprise BPM platform that manages most aspects of their business, but many have created underwriting, servicing, or claims process environments using BPM tools."

8 Compliance and Security

Sarbanes-Oxley dramatically changed how financial processes are structured, automated, and monitored, notes Travers. "IT was thrust into providing a new level of support and greater responsibility, and in some cases, the CIO/CFO relationship was strained beyond what is commonly a tense balance," he says. IT leaders found a way to turn compliance to a positive by implementing cost-saving process automation tools and putting their support behind process retooling efforts. Security always has been a challenge and has ballooned into a huge problem. "With so many points of access, so many endpoints, and so many opportunities for breaches to occur, IT never can completely mitigate all the risks," says Travers.

9 Aging IT Systems and Work Force

Most insurers are faced with the lethal combination of the aging IT work force and legacy systems, explains Smallwood. "Many insurers continue to nibble away at the issue through legacy replacement and migration plans, staff augmentation, and formal documentation, but this continues to be a high-risk area," she says. "Gen Y will not likely maintain those COBOL programs, and the extensive knowledge that is trapped in the baby boomers' heads soon will be gone. Unbundling legacy code into technology tools and developing enterprise architecture with IT road maps are the best ways to tackle this challenge."

10 Service-oriented Architecture 

SOA became a top-of-mind issue for insurer carriers in 2002 and 2003, according to Josefowicz. "The true value of SOA for the insurance industry has been tactical rather than strategic," he says. "By creating reusable integration points using SOAP/XML, insurers have reduced the complexity and cost of integration by as much as half or more. SOA has been a critical tool for insurers to deploy new business capabilities over the past five years."