Working Behind the Scenes: Some insurers are benefitting from advanced information technology that focuses on operations without shutting down new sales opportunities. (Property/Casualty).

With the drive to expand scale, geographic reach and product offerings, some insurers are getting payoffs from advanced information technology that puts the main focus on operations without shutting down new sales opportunities. The biggest opportunity for information technology to improve earnings during the global economic downturn is in the back office. Our studies suggest that the combination of lean processing and a three-pronged application of information technology we call "technology-enabled redesign" is helping insurers cut expenses by 30% along their entire value chain and by nearly 50% in back-office operations.

Through redesign projects, insurers can give customers more personalized service by offering real-time information on multiple delivery channels, such as automated phone and Internet services. As insurers apply this approach, they can reduce costs through more efficient interactions with their employees, suppliers and partners.

Core-process redesign is a conventional way to improve technology activities by consolidating legacy systems and increasing the reach of automated processes to accelerate speed and improve quality. Technology-enabled redesign adds these elements:

* An open, Web-enabled platform so customers, agents and suppliers can gain immediate access to information and real-time transactions. In auto claims, costs can be substantially reduced for handling telephone inquiries if key data for managing claims, including when a car under repair will be ready, are available in real time either by phone or online.

* Principles of lean operations to reduce waste, accelerate processing speed and improve service quality. For example, segmenting application volume based on the level of required underwriting time will shorten the time needed to complete most applications, which require minimal underwriting reviews.

* Expanded use of middleware to introduce common standards and centralize data transfer. Middleware is a programmed information-technology interface that serves as a common linkage point for all internal data systems, applications, standards and interfaces.

The second discipline, lean-operations principles, can deliver about one-third of potential cost reductions--often within six months to a year. This discipline generates quick results, because it focuses on processes with the highest potential for creating value and supports a pattern of rethinking the organization and its processes every day.

One European insurer, for example, has reduced product-development costs by 45% by combining all elements of technology-enabled redesign. Borrowing a page from the manufacturing industry's principles of lean operations, the "bill of materials" approach, the insurer began applying common standards to calculate actuarial ratings for a variety of life insurance products. Previously, a different set of actuarial parameters was required for each product offered.

The company also confronted the high costs in multiple, inefficient systems of hardware, software and applications that had accumulated under its information-technology operations, mainly as a result of several mergers and acquisitions. The company consolidated these varied systems into a single platform. The company also set up a Web site that enabled underwriters and agents at the point of sale to enter or access key data from personal computers.

This streamlining made it simpler to create programs for rating plans and other standard features for the various products. In addition to easing the workload for underwriters and agents, customers had direct access to product and account information. This redesign of the information-technology architecture reduced costs by as much as 75%.

Finally, the company put training materials for selling life insurance products onto an intranet. Underwriters and agents could more easily retrieve and study material, and it sharply reduced travel expenses for underwriters and agents who previously had to travel to training sessions.

Auto insurers seem ripe for larger payoffs: Their overall savings from information technology is projected in the range of 25% to 30%. The savings leverage likely will be greater for auto insurers than life insurers, because expenses as a percentage of gross written premium for auto insurers are nearly twice the level of individual life carriers. So the projected absolute benefit from technology-enabled redesign exceeds 8% of gross written premium, or double the expected return for individual life carriers.

All of this suggests that insurers applying these redesign methods are leaving less money on the table today, while anticipating better performance ahead.

Olav Noack is a consultant with McKinsey & Co. in Zurich, Switzerland. McKinscy & Co. is a global management consulting firm.