No Strings Attached.

The challenge for the insurance industry is to recognize the potential of wireless technology and apply it to meet business objectives.

Wireless data communication is permeating both business and personal lives around the world. This trend follows the wireless voice communications boom--most easily evidenced by the use of cellular phones--of the past 10 years and is made possible by two factors.

First, information technology continues to adapt to the incremental requirements of the commercial and consumer marketplace. The entire cellular-communications craze happened because the continued miniaturization of electronic components and the integration of computer-controlled, high-speed switching of voice and data signals made it possible. The second factor is the raw capability of today's information technology, coupled with the increasing pace of technological change. The challenge for the insurance industry is to recognize the potential of this technology and apply it to meet business objectives.

Basically, wireless data communications provides another mechanism that agents, adjusters, and consumers can use to access insurance resources. To achieve the benefits, companies must develop or refine the Internet and e-business infrastructures that allow them to participate in the initial thrust of the wireless technology boom.

Over the past five years, the Internet and e-commerce have provided consumers with a significant new way to research and make purchases, ranging from music CDs to houses. The insurance industry has sought to make use of this trend by providing what can be called "presales support mechanisms," such quotes, coverage descriptions and agent locators online. But insurance is not a product that provides any form of "instant gratification" upon purchase or delivery, except as the fulfillment of a financial responsibility.

That fact, coupled with the basic complexity of the average property/casualty policy sale, will mitigate any projections of massive e-commerce penetration into traditional insurance sates. TowerGroup predicts that such changes will require cultural and functionality changes, as well as technological upgrades. But TowerGroup believes that consumers eventually will warm to the flexibility and convenience of e-commerce for the purchase of insurance.

But as important as online sales and sales support are, they are just one of the sales channels available to insurers. The real value of the Internet and the emerging capabilities of wireless technology lie in providing unparalleled claims service and enhanced customer-relationship management.

Two-Phase Commitment

Wireless will unfold in two phases over the next several years. In its first phase, the technology represents a new access mechanism, or channel, for the Internet, much in the same way that the Internet itself is a new channel for business. The cost that wireless Internet access extracts from its current users is slowness--9.6K baud to 14.4K baud data feeds--and, depending on the device, small user interfaces.

The devices themselves currently contain only a certain amount of processing power and memory. The primary recipients of wireless data communications today are handheld devices that include "smart" cell phones, two-way pagers typified by the Blackberry device from Canadian firm Research In Motion, and personal digital assistants, such as the Palm Pilot and the Pocket PC.

These facts limit the type of application that can run, even with the thinnest of clients. Despite these limitations, a growing number of services are being offered, including stock trading, e-mail delivery and information feeds such as airline flight status, movie times, news headlines and weather conditions. (The term "thin client" originated with Internet Web browsers as small programs that provided a ubiquitous interface to server-based applications as opposed to the traditional "fat" customer interfaces that required large, multimegabyte local programs that worked with PC operating systems such as Windows 95 and NT.)

The graphic "Wireless Infrastructure Elements" on page 116 portrays the Internet and the first two phases of wireless technology.

We are now in the latter half of the second generation of wireless service, often referred to as the 2.5 generation or 2.5G. The major advance from the first generation to the second was the move from analog to digital signal transmission. The 2.5G infrastructure advance incorporates digital packet switching that works like the wired Internet.

The third generation (3G) leverages all the technological advances with increased multiplexing of signals and even better transmission infrastructure components. The result will be access speeds that range from 144 thousand (kilo) bits per second (kbs) to more than 2 million bits per second. These hardware improvements to the wireless infrastructure will be coupled with more powerful receiving devices that will dramatically increase the number of possible applications because they are faster and have more memory.

The potential for the second phase of wireless technology causes analysts and pundits to make predictions that range from Orwellian privacy intrusions to beneficial, "Star Trek"-like cultural changes. Already, wireless devices are beginning to incorporate other technologies, such as global positioning system chip sets, which allow the device to locate itself almost anywhere on Earth with 1- to 10-meter accuracy.

Agent Sales Support

The promising role of wireless technology in the insurance industry is mitigated by two simple facts: The purchase of insurance is not a transaction that consumers enjoy, and from a retail-sales perspective, insurance is transacted only a couple of times a year. Still, the Internet is providing sales support and is facilitating actual sales in the more advanced insurance e-commerce sites. This activity will only increase in the near future as more and more insurance providers reach critical e-commerce viability. Although this activity frightens some insurance carriers and their agents as their traditional sales channels are disintermediated, the prospect of a consumer being inspired to transact this business while using a mobile-computing device, such as a cell phone or a personal digital assistant, is minimal.

Potential for Adjusters

Although prospects for glamorous, mobile, real-time insurance sales are bleak, the real work for wireless technology in property/casualty insurance revolves around claims servicing. The adjuster and the agent can both use the calendars and other traditional personal information-management capabilities that handheld devices afford, but these functions will improve by being connected to central sites via wireless. Wireless technology's real promise will come from resolving some of the more complex aspects of claims servicing.

When 3G devices and infrastructure are in place, it won't be too long before property/casualty claims adjusters will be using devices that are tailored to their requirements. The personal digital assistant and portable-computing tablet formats will merge into a device that supports streaming digital video and still photography of claimants' property, as well as the authorized recording of audio from the scene of a loss.

Fraud losses will be reduced when the information and telemetry from a loss site is presented to claims management and to the special investigative unit for potential fraud evaluation. Customer relationship management goals will be met when the adjuster can inspect, price repairs and schedule repair services from the scene, and provide a check or perhaps an Internet money transfer to the policyholder's account within minutes. Consumers will begin to expect this level of service and improvements in accuracy that accompany it.

The graphic "Wireless to the Rescue," below, shows how widespread wireless technology could affect an all-too-familiar property/casualty scenario. A high school student is involved in a car accident in the school parking lot after classes. The student is not hurt, but the vehicle is not driveable, so he calls his father, reports the problem and waits for him to arrive at school.

The father calls his wife at work, and their insurance agent and then goes to get his son. When he calls the agent from the accident scene, the agent tells them to place their wireless-enabled phone near the car. The agent activates the Bluetooth short-range wireless transceiver in the policyholder's phone from his desktop claims application. The phone then communicates with a similar device in the car to establish facts about the car (vehicle identification number, mileage, minimal status information) and the accident (date, time of day, speed, number of occupants, location from the global positioning system module, etc.).

After this exchange is confirmed to the agent's application--which takes about 10 to 20 seconds--the agent instructs the father to lock the keys in the damaged car. In the meantime, the agent's claims application already has contacted a nearby preferred towing service provider via wireless technology. It also sent an e-mail to the policyholder detailing the claim event, the coverages that will be invoked, and the rental-car provision that the insurance policy includes.

The tow-truck driver might even be an authorized claims prework vendor. If so, he will take several images of the car and forward them to the claims call center for preprocessing. While some of this activity may seem to intrude on privacy rights, a policyholder may be offered reduced rates on insurance or a freeze on future rate increases in exchange for this level of information sharing. These issues are part of the larger issue of personal data privacy and the trend toward required "opt-in" provisions of service contracts and other e-commerce agreements.

Looking Ahead

It is clear that the wireless components of the technology-based new economy have the potential to significantly alter the way that financial-services institutions--property/casualty insurers in particular--do business over the next three to five years. Wireless technology can be seen as the fulfillment of the predictions for computer networking espoused more than 30 years ago. A world where people are empowered by having access to accurate, practical information via personal-computing devices is now upon us.

Initially, for many businesses and the public at least, wireless will mean the attainment of almost trivial convenience. However, as financial-services institutions--especially the insurance industry--prepare their infrastructures to meet the broad capabilities of wireless data communications, the potential for increased levels of customer service, customer retention and bottom-line efficiencies cannot be ignored.

James H. Bisker is a senior research analyst, insurance practice, TowerGroup.

Wireless Infrastructure Elements

Current wired access options for the Internet range from the slowest dial-up connections to cable modems and digital subscriber line feeds.

Ubiquitous Computing 

As the second, high-speed generation of the wired Internet comes online in the next several years, these speeds will increase, and so will the richness of the thin-client experience for wire-based consumers of insurance products.

Phase I Wireless (2000-2003)

The major advance from the first stage to the second was the move from analog to digital signal transmission. The third generation (phase 2) will leverage prior technological advances to significantly increase access speeds.

Phase 2 Wireless (2003-2006)

Source: TowerGroup

Wireless to the Rescue

When an accident occurs, a call to an insurance agent who uses wireless technology can set an electronic claims process in motion. The agent will instruct the policyholder to place a wireless-enabled phone next to the damaged vehicle. The agent then activates the Bluetooth short-range wireless transceiver in the policyholder's phone. The phone communicates with a similar device in the car to establish facts about the car and the accident. The information is then transmitted to the agent's desktop claims application. As the agent instructs the policyholder to lock the keys in the car, the agent's desktop application automatically contacts a preferred towing service that is located near the accident site. The wireless technology also has sent the policyholder an e-mail detailing the claim event, the coverages that will be invoked and the policy's rental-car provision.

Source: TowerGroup