Newsletter Sign-up

Few technologists have ever credited the property/casualty insurance industry as being leading technology innovators during the past three decades. If anything, when it comes to innovation and technology, the industry has had a penchant for the status quo.

Why the foot-dragging? One reason, experts say, is that insurance transactions typically don't require lightning speed or the latest graphical user interfaces. Insurance contracts aren't built on Centrino chips and terabytes.

BIG IRON STANDS FIRM

Mainframe computing has been the bread and butter technology for the property/casualty insurance industry--and its first true technological innovation. There's a good reason for it, according to Jamie Bisker, global insurance industry leader for IBM and formerly the insurance industry leader at Tower Group.

"From the very beginning, mainframe computing enabled all of the capabilities the property/casualty insurance industry needed in regards to automation," Bisker, says. "It provided and accelerated automation, which had been lacking in insurance."

In accepting the mainframe as their central technology platform, carriers did it first and got it right. Mainframes, the hardware where so-called "legacy" systems reside, still dominate today and are likely to in the future.

"Mainframes are a 'sunk' cost, so many times there is no need for change and as a result, a reluctance to change," says Bisker. Nor does the insurance sector have the high-volume transaction activity of other data-driven industries like banking.

As it stands, mainframe technology is the backbone for all technology within the insurance industry and it should perhaps come as no surprise that IBM supplies about three out of every four carriers with mainframe technology.

You won't find a public or private major carrier in the world operating without a mainframe: Zurich North America in the United States, for example, Kyobo Life Insurance in Korea, Tokio Marine & Fire in Japan, RheinLand Versicherung in Germany,

In the premainframe days, insurers had one need above all others: to understand cash flow. "Mainframe computers solved a major problem for insurers, and to this day a lot of those problems still exist. And mainframes still do them well," says Michael Goodside, enterprise architect at ISO Insurance Technology Solutions, in Jersey City, N.J.

More recently, retooling the mainframe has evolved to include an Internet thread so as to combine the benefits of the mainframe with the benefits of the newer Web-based technological advantages.

"The trick in insurance and in managing risk is having the data, analyzing the data, and doing something with what you just found out," says Goodside. "The mainframe is a great execution environment for that basic challenge, and represents a true tech innovation for insurance."

Technological innovation in mobility and communications also had a major impact on the risk management world, according to Steve Wunker, a partner at Innosight, a Watertown, Mass., consulting firm.

More recently, digital cameras, cell phones, Personal Digital Assistants and laptops have changed the way adjusters conduct business with clients. "These devices have helped enable the role of the professional--claims adjusters, actuaries, underwriters--as the technology has given them the chance to do things themselves without waiting for a mainframe report," says Wunker. That has had an impact on a carrier's competitive position, he says.

More than two years ago, for example, Gore Mutual Insurance in Cambridge, Ontario, deployed to field adjusters pen-based software on a tablet PC to speed damage claims and make repair estimates more accurate.

In 2001, Selective Insurance Co. launched its Mobile Claims System to help adjusters collect claims data more efficiently. Selective's workers' comp adjusters were already working with the technology as far back as 1999. The majors, Chubb, Zurich and AIG, for example, routinely issue their adjusters with the latest mobile hardware.

SOFTWARE GOES BROAD AND DEEP

According to Orin Linden, office practice leader, P&C Actuarial Services, at Watson Wyatt Financial Services, the rise of "expert" systems and predictive modeling is providing the normally staid property/casualty industry with an innovation revolution. "Traditional rate-making was very static, with a very global approach," Linden says.

But with predictive modeling the insurance industry can analyze the data at a deeper level, resulting in a much better job at setting rates.

"Today, there are really good tools in the marketplace, and some companies have invented their own," he says. "The growth of this type of modeling makes it one of the dominant forms of ratemaking, especially for passenger auto, but also workers' compensation and homeowners."

But in commercial insurance, digging deep into the data is half the picture. Solving the other half of the equation means to give policyholders and risk managers a holistic view of their risk exposures through the development of Risk Management Information Systems.

Chubb Commercial Insurance's three complementary products, RMIS Dimensions, Loss History Analyzer and ClaimView give policyholders and brokers a "global" view of the relationship between claims and loss histories.

Travelers' Client Access Risk Management Analysis, known by the acronym CARMA, has been in use for more than 20 years and offers its users the same kind of holistic view of risk. Liberty Mutual's RISKTRAC, which is installed in more than 3,000 installations, according to one survey, is designed with the same goal in mind.

Marsh's popular CS STARS applications support risk management, claims administration, compliance management, bill review and data management all at once. RiskConsole, the risk management information system owned by Marsh's archrival Aon is designed to offer the same service to Aon clients.

Vendors to the industry like Computer Sciences Corp., offer Risk Sciences Group Inc., and Specialty Risk Services LLC, offer their own versions of risk management information systems as well.

SHIFTING ARCHITECTURES

While mainframe computing still dominates the insurance technology scene, technological innovation in the form of service-oriented architecture (SOA) is making a stab at helping transform the insurance industry.

SOA, an architecture that supports the transformation of a business into a set of linked services, or repeatable business tasks, can be accessed when needed over a network. These services can combine to accomplish a specific task, enabling carriers to quickly adapt to changing conditions and requirements.

"The business processes of insurance has been a slave to the technology originally put in place decades ago," says Bill Hartnett, the U.S. insurance industry solutions director at Microsoft. "Rates, policies, claims, workflows ... all were designed to match the technology," he says, a symptom of the "machine ready" world.

But in the SOA world, it's about the insurance business process being "people ready," Hartnett says.

"In the past, you would have technology to issue polices and need to train people on how to use those older systems," Hartnett adds. "SOA can decompose the business process, but it also allows you to take the technology and map the technology very closely to those processes. It's a much more flexible architecture."

Early adopters of SOA include the Guardian Life Insurance Co. of America and The Hartford, which began implementing the new architecture more than four years ago. In addition, Great American Insurance Group and Fireman's Fund have also begun adopting the architecture.

Most important of all Hartnett explains, SOA can give carriers a much faster response time to market conditions or new products. So if someone creates a new product, carriers can either filter it to IT, which will provide systems support in about 18 months, or they can use SOA to build an application in three to six months, depending on complexity.

"SOA allows us to build systems, using specific services as a building block," says ISO's Goodside. "It's an enabling technology that allows you to build business applications out of bubbles that can be plugged into each other."

In a related technology that has spawned innovation in insurance, Software as a Service (SaaS) and the application services provider (ASP) delivery platforms are also on the rise. While technically not the same, SaaS and ASP are close.

ASP came first, offering insurance industry companies the option of having a software application (claim processing, for example) accessible remotely via the Internet on the vendor's servers. The idea here is no upfront IT costs and easy implementation, because all it takes to use the software is a Web browser and Internet connection.

SaaS, on the other hand, is a software application delivery model where the vendor develops a "Web-native" software application and hosts and operates it for use by its customers over the Internet.

TOM STARNER lives in Philadelphia.

ALSO: READ THE OTHER PARTS TO THE INNOVATION SHOWCASE ISSUE.

September 15, 2007

Copyright 2007© LRP Publications