Time to get real: insurers must harness the Internet to grow business and reduce costs. (Technology: Internet).

All the rules are changing for the life insurance industry. Consumer needs have evolved to the point that products once sold for the purpose of creating wealth after death, now must build and preserve wealth during a lifetime. Now that banks and investment firms are free to prowl the once exclusive turf of insurance companies, the industry faces real competition along with escalating capital requirements, operating expenses and distribution costs.

All of this is happening as a new financial-services landscape is emerging. This new world of financial services--"wealth management"--pits banks, investment firms and insurance companies in a battle for pre-eminence in the accumulation, management, distribution and preservation of individual wealth. So far, the banks and investment firms have been winning.

While the opportunity for the insurance industry is enormous, meeting the challenge of these changing times requires both recognizing the change, and a new way to respond to it, as important as the insurance industry's effort to update products and improve the efficiency of distribution may be, these actions alone don't go far enough to enable companies to compete on a level field against banks and investment firms. The reality is that life insurance companies must redefine the very essence of what and how they do business.

If insurance companies fail to change their basic operational business model, expenses will continue to escalate and service to customers and the distribution system will deteriorate, which will cause profit margins to shrink even further. Such a scenario would make it impossible for insurers to compete effectively against the new players in financial services. And, that would be catastrophic for both individual companies and the industry in general.

Leadership Beckons

Life insurance companies can lead the way in the new "wealth management" industry. But they must first transform themselves into "real-time" companies.

A "real-time" company uses the enabling power of technology to achieve a multifold increase in employee productivity, making it easy for customers to do business with them and to increase support for the distribution system--all in real time. The change offers results that include expanded capabilities, reduced expenses, operational flexibility and wider profit margins, all leading to the ability to compete more effectively.

The real-time concept is not "pie-in-the-sky" wishful thinking. The technology, both hardware and software, needed to build a real-time company is already here. The only missing ingredient is recognition within the industry of the need to become a real-time company and the commitment to make it happen, really soon.

History can help us understand the concept and benefits of doing business in real time. Think back to pictures of employees at work in large, white-collar offices of the 1940s and 1950s. Imagine workers sitting at rows of desks crammed close together in one huge room. Some of the workers write in ledgers, while others peck away at manual typewriters. As the company grew, it added more employees, ledgers and typewriters. But this approach had its obvious physical limitations. As mass was added without improving productivity, expenses increased, efficiency slowed, profit margins decreased and eventually growth became impossible.

Yet companies and the economy did grow exponentially during the second half of the 20th century. One single event--the development and implementation of computer processing technology--not only made it possible for the economy to grow, it also was the stimulant for growth.

Members of the service industry, especially insurance companies, were the primary beneficiaries of this business revolution. Computer processing enabled companies to significantly increase the work volume that could be processed, while reducing costs. Clearly, without the computer, the growth and profitability of the insurance industry would have been severely curtailed, if not eliminated altogether.

Unfortunately, this first technological revolution has run its course. The concept has realized its potential, and automating a process is no longer an effective way to increase productivity and reduce costs.

A Phoenix Arises

Just as computer processing fueled corporate growth in the 20th century, the Internet has emerged to help perform the same miracles in the 21st century. By integrating the hardware and software available today, the innovation and flexibility of the Internet will once again allow companies to make a quantum leap in productivity and expense control. The result: increased margins, better service and the path to growth.

The technology of the Internet is not an alternative or replacement for employees or agent distribution. Quite the contrary. When properly applied, Internet technology is an enabler for employees and agents to become more productive, and at less cost.

Imagine, then, a re-al-time company as a large shopping mall, where most, if not all, shopping needs can be accommodated under a single roof. The mall concept offers everything you may need--shopping, eating and entertainment--all in one place and in a convenient manner.

Apply that same concept to an insurance company, where the Internet serves as the mall. Sign on to a real-time company's Web site, and the door is opened to all the products, services and benefits offered by that insurance company. The simplicity and efficiency of this concept should apply equally to employees, policyholders and distribution systems. A real-time company allows an individual to access, from anywhere, all the services offered by an insurance company, almost as if they had walked in the front door of the home office. What's more, the customer or agent can complete any transaction, 24 hours a day, seven days a week. In essence, the Web site becomes the insurance company's virtual, perpetual home office.

The Internet as the Mall

It also can be argued that a fully implemented real-time company doesn't need a physical "brick-and-mortar" home office. That's because the key to a real-time company is a single database of information and capability, which can be accessed, by any stakeholder, from any location. A properly implemented real-time concept will allow a company to process and service a multiple increase in levels of business, faster, more efficiently and at less cost, all within the boundaries of its current home office.

Agents dealing with a real-time life insurance company will be able to contract, learn about products, receive sales training, order supplies, develop proposals, submit applications, receive policies and commissions--all via the Internet. Agents can log on to view product videos and attend training classes. Moreover, they can access the status of all of their clients and check on the status of pending business. In fact, their own office management can be part of a real-time company's service.

Employees working for a real-time life insurance company can respond to requests and process all transactions, by simply signing on to the company's Internet mall. In reality, employees working for a real-time company could do their job from any location that has a phone and computer modem.

Policyholders need only sign on to the company's Internet mall to obtain company information, learn the status of policies, pay premiums, request loans, make policy changes or even file claims.

Increased productivity and reduced costs are vital, but convenience is another unspoken, yet almost immeasurable benefit that comes from being a real-time company. In today's fast-paced world, convenience is everything. A company that is convenient to work for, represent or do business with, is a company that has a leg up on its competitors. Consumers order clothes, books and gifts on the Internet, not because the cost is less, but because it is convenient. They use ATMs because the machines are convenient and offer banking when consumers want it, despite the hour. Without the convenience that a real-time company can offer, companies will have an even more difficult time competing.

The essence of being a real-time company is to improve productivity and service, while reducing costs. The ultimate concept of real-time productivity is quite simple, too. It can be called the "Sawyer Syndrome." Remember Tom Sawyer, who was given the chore of painting the fence around his family home on a wonderful summer afternoon? What did he think to do about his dilemma? He convinced his friends to paint the fence for him, and to feel privileged in doing so. The lesson learned: Tom's productivity increase was infinite, his cost was reduced and his friends were happy.

Adopting Sawyer Tactics

Insurers can emulate Tom Sawyer's accomplishments within their own operations. For example, consider a real-time company where agents submit all applications via e-mail and the Internet. What does this mean? The company mail room no longer needs to receive, open and forward all of the applications. There is no need for someone to build a file and key the applications into the system. Moreover, when the policy is issued, it can be electronically transmitted back to the agent for downloading and delivery.

How much would home office productivity improve using this type of real-time application processing? The increase would be infinite, because the agents are actually doing the work for the home office. While the agents are doing the work for the home office, they are pleased because they feel more in control and are getting faster service. The same concept, and results, can be applied to virtually every transaction of the real-time company. Think this approach is wishful thinking or the benefits are not real? When customers use an ATM, they are doing the bank's job, reducing its costs and thinking all along what great service they are receiving. Sometimes, customers even pay a fee for the wonderful service. Tom Sawyer would really be smiling today.

Unfortunately, in the larger confrontation with banks and investment firms, insurance companies are losing the real-time race. It's been estimated that more than 24 million people now bank on the Internet. These bank customers can view account balances, pay bills, transfer funds, make investments, apply for loans and complete a variety of other services, all on a convenient 24/7 basis with no direct bank involvement.

Investment firms are even more sophisticated than banks in offering real-time service. Consumers can access any of the major investment firms or mutual fund groups to open accounts, download research, view account status, make trades and transfer funds--all in real time--as if they were in the offices of the investment group. It is widely estimated that the investment industry now processes 10 times the volume it did 15 years ago--all with fewer personnel, better service and reduced costs.

Imagine how much bank costs would increase if employees and branches were needed to provide the services now available real time from the Internet and ATMs? Imagine how inefficient investment firms would be if they had to provide physical facilities for all the services offered on the Internet?

If that can be imagined, then imagine why it will be so difficult for insurance companies to compete against banks and investment firms, unless they also use the same technology to become real-time companies.

It's not too late, but now is the time to become a real-time company. If insurance companies do not move forward with the concept of real time, really soon, they will be sorry, real time.

Robert W. MacDonald is chairman of Allianz Life of North America and principal for CTW Consulting, a Minneapolis-based insurance and management consulting firm.