Staking a claim to a tech advantage: it is not enough to adopt the newest technologies. There must be a strategy in place to maximize the investment. (Technology: Customer Service).

During the 1960s and 1970s, the insurance industry was at the cutting edge of technology. Quite often, carriers looked to outside partners or to their own nascent information technology departments for leadership in improving processes and lowering costs. Since then, perhaps victims of their past IT success, insurance carriers have been slow in moving to better technology-hence the "legacy system."

Over the past few years, though, the insurance industry has begun to invest heavily in changing its IT infrastructure to more robust and up-to-date tools. Insurance companies now recognize that using the right technology is critical to creating a competitive advantage. Sometimes, however, carriers seem to forget that simply employing the newest technologies without a well-thought-out IT strategy can be quite problematic.

For example, many analysts agree that a lack of strategic thinking was apparent in the insurance industry during the first wave of Internet-enabled technologies (1996-2001). Granted, several of the Internet tools implemented during this time were cutting edge. But as history has shown, the creativity of the technologies alone was not enough to sustain the companies that developed them or to provide substantial return on investment to insurance companies that deployed them.

Myriad reasons have been given as to why these companies failed on both accounts-everything from problems with excess spending to the limits of state regulation. In retrospect, the success and failure of these insurance-focused Internet companies present a clear guide for insurance carriers to develop their own IT strategy. An effective IT strategy- whether it be outsourced, partnered or internal-should include careful consideration of three basic issues: customer satisfaction, core processes and ease of transition.

Customer Satisfaction

The end-customer often has been forgotten as new technology has been rolled out. Insurance carriers did not convince their customers of the benefits of the technology. For example, the advantages to purchasing insurance through a Web site rather than by phone haven't been clearly defined in the consumer's mind.

Although acquiring a customer, through the Web or otherwise, is becoming more difficult for property/casualty insurers, what often affects carriers the most is churn. Research has shown that customers, once they select a carrier, rarely switch except for one reason: a bad claims experience. In fact, a customer who endures a poor claims experience is almost four times more likely to switch carriers than one who has a good experience. A good experience creates loyalty between carrier and customer that is lasting and profitable.

Insurance companies should seek out ways to improve claims management in the eyes of the customer. Speed of settlement, accessibility of adjusters and availability of information should be at the top of the list of any claims-management technology that insurance carriers launch. Core Processes

Degree of impact is another part of the puzzle. The majority of recent Internet companies targeted noncore areas of operations--whether they purported to improve advertising spending, direct sales, content management, information gathering or agent connectivity For instance, no fewer than 22 companies have touted that they would eliminate agency commissions with their online marketing technology, but commissions usually amount to less than 10% of premiums. On the other hand, few companies targeted the more complicated but much more crucial claims-management functions.

Claims investigation, negotiation, salvage, repair and evaluation are all areas where great improvements can be made through the Internet. In fact, studies have shown that improving these areas can have up to eight times more impact than front-end improvements in sales or distribution. For instance, enhanced claims- negotiation systems alone can reduce costs by more than 20%, apart from the improved customer satisfaction and goodwill generated by prompt contact and payment.

Ease of Transition

Most Internet companies were attempting to eliminate the "middlemen"--for instance, insurance brokers, mediators/arbitrators or plaintiff's lawyers--in the process without recognizing the crucial role that many of them play. These companies might have been better advised to improve the current process rather than remake (or upend) the existing system.

Although all technology changes take some getting used to and require strong corporate support (for example, the 50 scribbled Post-It notes on a claims folder that should be entered into the system), a technology is only as good as the willingness of current process owners to use it. To ease this shift, implementing new technology should not disrupt current processes too drastically; staff productivity drops off quickly when this is the case.

A claims-management technology should insert itself as smoothly as possible into the current processes. For instance, Web-enabled claims-negotiation software should be inserted at appropriate points in the current claims flow, rather than bottlenecking the flow and usurping relations among adjusters or between adjusters and claimants.

Most agree that property/casualty insurers need to upgrade their IT systems and strategy. Whether this is done internally, with outside help or is outsourced completely, insurance carriers have a great deal to learn from the past bumpy years in crafting their new IT strategies. By becoming customer centric, focusing on core insurance processes and easing transitions, careful IT investment can save the insurance industry and consumers many billions of dollars. It also is likely to define a set of carriers with distinct and lasting competitive advantages.

Ali Dibadj is co-founder of WebMediate Inc., an online claims-resolution service for property/casualty insurers.