Make Sure Client Data Is Secure.

Technology is not to blame for the insurance industry's privacy issues; it is a tool to help resolve them.

Improvements in technology have made it relatively easy and cost effective for insurance companies of all types to gather, store and share consumer information. While maintaining a database of client information can result in cost savings and improved customer service, consumer awareness and concerns about privacy are growing. And stirred by consumer anxiety, privacy regulations are creeping into current legislation.

Organizations unable to address the legal and social necessities for privacy risk fines and penalties as well as a loss of consumer trust and loyalty and, ultimately, revenues. Technology should be seen as a tool to provide the solution rather than as the cause of the industry's privacy issues.

Companies in the insurance businesses are gathering more and more consumer information from online sources, such as Web sites, and offline sources, such as call centers and third-party data providers. They are storing and analyzing this data to help them better understand their current subscribers and improve customer retention, as well as to attract new customers and identify opportunities for cross-selling and up-selling.

Consumers can enjoy benefits from the electronic transfer of their data. For example, it is common for pharmacies and insurers to transfer information, saving consumers paperwork and hassle. But consumers are concerned that their personal information will fall into the hands of individuals or businesses that may misuse it.

It is important to understand that the catalyst for recent privacy legislation is not the amount of data collected by insurers, it is the ease with which the information can be transferred to third parties electronically.

Under terms of the Gramm-Leach-Bliley Act, the financial-reform law, insurers and financial institutions are required to develop privacy policies stating the conditions under which they will transfer customer data to unaffiliated third parties. In addition, companies must give consumers the opportunity to prohibit their data from being distributed to any other party. This act also encourages states to enact their own privacy legislation.

How will insurers track subscriber preferences for information sharing--and make sure they don't violate them? How will insurance companies ensure they are observing the privacy laws of each state for each subscriber? The answer is technology, more specifically, data warehousing.

The same technology that allows insurers to generate consumer knowledge from the raw data it collects will allow them to store subscriber privacy preferences and track state regulations.

Data warehousing is the technology needed to provide a single view of each customer, to safeguard against violating consumer privacy wishes and to look across a multistate customer base. With an enterprise data warehouse, insurers can ensure that they have a single location for data on all consumers--including their privacy preferences. And with the ability to sort consumers by state, insurers can comply with state laws, which may require information security audits and records of how each consumer's information is used.

Compliance with state and federal law may require insurers to give consumers the choice to "opt in" or "opt out" of third-party data distribution. Also, legislation may ask that consumers be given a copy of the information already on record about them. The potential administrative cost of these programs is immense.

Data-warehouse technology will allow insurers to easily add the opt-in or opt-out tags to the logical data model, the set of parameters used by complex databases. Also, specially designed software can give consumers secure access to their information in the database, which will let them update their own information over the phone or via the Web.

In a recent survey on privacy by KPMG, 62.5% of insurers said they would adopt a "wait-and-see approach" toward developing privacy policies and 17.5% said their companies had no privacy policies.

Insurers should include the following as they develop strategies and policies for consumer data protection:

* individuals have the right to see the information collected about them and to correct any inaccuracies;

* consumers have the right to opt in or opt out of plans to share their data with third parties; and

* the administration of the first two will be facilitated by a technology infrastructure that includes a data warehouse with business rules for compliance, security to prevent privacy violations and software triggers that detect any potential violations.

Insurers can make privacy an opportunity. By embracing policies and technologies that address this issue, insurers will set themselves apart with consumers. In short, privacy is good for business.

Patricia L. Saporito, CPCU, is a senior property/casualty industry consultant with NCR Corp., New York.