Finding the E-Payoff.

Insurers are focusing on customer service to improve the return on their technology investments.

Allmerica Financial has tripled its discretionary spending over the past four years, increasing spending by 25% in 2001. Quality customer service has been a driving force behind much of these increased dollars. In recent years, Allmerica has invested heavily in state-of-the-art administration and point-of-sale systems. This year, Allmerica directed much of its IT spending to take advantage of recent technology advances, such as enhanced Internet capabilities and customer relationship management.

"We've made significant investments in e-business with a point-of-sale system and CRM to reach customers easier and quicker," said Greg Tranter, Allmerica's chief information officer.

Allmerica is among several insurers that have shifted their technology spending to focus on improving client satisfaction in the hopes that they will see a payoff.

Improving Customer Relationships

According to a recent study by PricewaterhouseCoopers and the Economist Intelligence Unit on creating a competitive advantage around insurance e-business, 80% of respondents say their top motivation for e-business is to deepen client relationships.

"Carriers and agents recognize that technologies such as Web-enabling their businesses will make it possible to deliver a faster and more transparent customer experience at significantly lower cost," said Charles Brinkley, lead partner of insurance e-business strategy at PricewaterhouseCoopers. This allows insurers to preserve their franchise with customers and also anticipate and respond to clients' needs with a higher level of service, which enables them to preserve their franchise with customers.

One investment that is strengthening customer satisfaction and beginning to prove profitable for some companies is customer relationship management--the science of developing a customer-centric organization. Allmerica, which added Siebel Systems to its expanding CRM capability last year, is already experiencing an investment return, according to Tranter.

Insurers also are relying on other technologies for online claims processing, quoting and binding services and downloadable employee benefits information, to help clients get the most of their insurance buying experiences, while providing a return on investment for the company's technology dollars. Nearly 70% of carriers and 43% of independent agents and brokers surveyed by PricewaterhouseCoopers and the Economist Intelligence Unit indicate that they will provide online billing during the next three years. In addition, nearly three-quarters of carriers and independent agents and brokers plan to offer online policy/account maintenance during that time.

Measuring ROI 

Return on investment is quickly becoming one of the most commonly used indicators among insurers to measure the value of investments.

While ROT is best used to determine an endpoint--or profitability of an investment--it is an equally important tool in the initial stages of determining how successful a technology will prove for the company. "Every company relies on financial decision-making before committing resources, and ROI is a good example of that," said Linda Rossetti, chief executive officer of the digital strategy consulting firm eMaven Inc. Rossetti will discuss ways to measure ROI in e-commerce initiatives at "E-Fusion 2001: Finding the E-Payoff," A.M. Best Co.'s 14th annual insurance and technology conference, which will be held Oct. 21-23 in Washington, D.C.

Rossetti identifies three fundamental pieces of information that insurers can gain by implementing ROI calculations into their IT investment strategies:

* the business benefit a company will realize if it pursues an activity;

* the total cost to complete a project including technology, training, process change and marketing costs; and

* a time frame when the costs and benefits will be realized.

In general, ROI is made up of the cost to a company to build a product vs. the returns in cost reduction and/or revenue production, said Steven L. Sheinheit, MetLife's chief technology officer. In addition, ROI measures the risk associated with realizing those improvements and compares it to the ability to achieve a goal within the intended time and at the projected costs. "When determining the projects that move forward, MetLife's model takes all these things into account, and prioritizes the projects according to the highest returns."

While companies' goals are generally the same--identifying a measurable performance of one investment relative to another--the ways companies measure their ROI vary.

Guardian Life has what it calls a "fairly simple" calculation for measuring its technology ROI by comparing total returns--whether from expense reductions or revenue increases--against the investment for a particular project. The overall mechanism is to then look at the five-year cash flows that encompass both the developmental period and the operational period, said Rick Omartian, information technology chief financial officer and chief of staff.

UnumProvident Corp. takes a cost-analysis approach in determining the value of its IT investments. Its evaluation is something between a strategic type of ROI and a cost-benefit analysis, said Robert Best, senior vice president of information technology. In measuring its investments, everything is balanced against the company's three primary business goals--product innovation, customer loyalty and supporting return-to-work initiatives.

Smart Investments

One way companies can ensure they get a return on their investments is to make the right investments. Companies investing in a data environment will gain knowledge such as upsell or cross-sell opportunities, Rossetti said. "This intelligence should also drive activities, such as targeted product development offerings or customer service enhancements, for more profitable customers. Overall, the right investments should position insurers for sustainable growth and continued improvements in profitability," she said. In the long term, companies who succeed in their investments are going to look to use e-commerce in all related technologies to drive their business in ways that will be difficult for their competitors to follow.

Insurers are looking for cost reductions and new revenue sources as a return on their investments. The Internet is a key player in making these benefits a reality, and many insurers have already jumped on the bandwagon when it comes to Web-enabling their operations.

For example, MetLife has enabled much of its Web-based technology to provide products and service to external customers, as well as e-enabling internally through its own internal and Internet-based capabilities, said MetLife's Sheinheit. Placing a stronger emphasis on re-engineering processes and improving automation to its call center are just two examples of how the company is accomplishing its Web-enabling goals.

After finding a return on investment from its Web-based strategies, TransAmerica continues to concentrate a portion of its IT dollars on the Internet, particularly its Web sites for agents and producers. "We specialize in the affluent, older-age market, and we need to have a certain functionality in our Web sites if we are going to participate in that niche;' said Ken Kilbane, vice president of e-business development. However, its Internet spending remains a relatively small segment of the company's overall technology budget.

The continued commitment to the Internet also has led insurers to a variety of other IT investments, including improving capabilities for their agents, introducing operating efficiencies and improving service to back-end systems.

Going Global

Guardian life also is forming global partnerships to maximize its return on IT investments. "Reducing the unit cost of labor by doing things with partners abroad is going to further improve our ROI," said Dennis Callahan, senior vice president and chief information officer. Guardian is in the process of selecting offshore partners in India to assist with its technology developments. In addition, Callahan believes Guardian's implementation of new architecture is also going to increase the company's productivity by 25% to 30% in terms of new development.

Improving business resources is also important in strengthening return on technology investment. "Everyone worries about IT resources, but business resources make up the other 50%," said UnumProvident's Best. In addition, ensuring that employees have the right skills and dividing projects that take longer than anticipated to complete into manageable phases minimize risks and are crucial in improving companies' ROI.

Completing projects at a lower cost and achieving a better cost benefit than anticipated are ways to improve ROL for technology spending, said Sheinheit, adding that these steps are continual objectives of MetLife's spending initiatives. Because companies need automation in order to add volume and provide necessary services, it is important for insurers to move to customer self-service to reduce costs and improve service by becoming more efficient when answering queries and questions they receive, he said.

Costly Investment

Another factor that impacts technology returns is scale. "The base cost of the most valuable IT system is so large we need more premium dollars--larger entities--to spread it over," said William R. Berkley, founder and chief executive of the property/casualty insurance holding company, W.R. Berkley Corp.

"We have concluded that we must have all our units working together in order to have the resources to make it work. It is changing the viability of the small enterprise from the point of view of having their own systems," Berkley said.

As customers remain the driving force behind most IT investments, insurers say their technology spending to enhance client satisfaction and other e-payoffs will continue to grow Of the more than 150 insurers surveyed in the PricewaterhouseCoopers and EIU study, 89% said they expect to increase technology spending during the next three years, said Sean Gold-stein, director of the insurance sector of eMaven.

Insurers Calculate the Payback Before They Invest in Technology

Some insurers determine their technology spending by committee. Others go through a series of cause-and-effect scenarios to figure out how much to spend. But the goal is the same: getting a return on their IT investments.

As technology continues to change the way they operate, insurers are spending more to implement information-technology solutions that will reduce costs and provide customers fast, efficient service. "Technology drives all of our important initiatives to lead the market in terms of simplification and automation," said Charles Berg, president and chief operating officer of Oxford Health Plan, which asks executive steering committees to make these decisions. "Therefore, with all administrative processes, the loop gets closed the first time and puts us in the best position to provide programs and services to our members in connection with their health-care needs and disease management."

At Oxford each initiative is evaluated by whether it is going to increase membership, improve customer service, increase revenue or satisfy a regulatory mandate, said Arthur Gonzalez, executive vice president and chief information officer. "This then allows us to look at all costs and benefits across the company, not just within a given operating unit."

An executive steering committee also prioritizes technology projects at UnumProvident Corp. The committee, which meets monthly, also reviews business plans and progress, and makes investment decisions. "Everything over a certain dollar amount goes before the committee, and we have a laid-out template in terms of different types of information about the costs, benefits and return we're going to get on particular projects, including strategic investments in terms of acquisitions, customer bases and shifts in markets," said Robert Best, senior vice president of information technology.

For Travelers Insurance, the partnership between technology providers and businesses is key in the IT decision-making process. "When we decide to do certain things, we very explicitly write down what we expect to gain from doing it," said Diana E. Beecher, senior vice president and chief information officer. While often quantitative, the process sometimes takes a more qualitative approach. To determine if an IT investment has paid off, Beecher and Travelers' chief financial officer follow up on the written goals.

At Allmerica Financial, business units present investment proposals to a core group of senior leaders, said Greg Tranter, chief information officer. The proposals define what the project is expected to accomplish and the anticipated business benefits such as sales revenue, expense savings and impact on service along with cost estimates. "The investment is weighed against the financial and strategic benefits, and we then go through and make decisions as to which investments provide the greatest return," Tranter said. In addition to this cost! benefit analysis, Allmerica also takes into account a project's strategic value to the organization, he said.