By Douglas Moeller, M.D., McKesson Health Solutions

As health plans begin to tackle yet another wave of emerging technology — the $8 billion molecular diagnostic testing market — it quickly becomes apparent that managing the utilization of these tests and the therapies they affect will present enormous challenges. G2 Reports and other industry sources have pegged the growth rate of gene testing at more than 20 percent annually.

At McKesson, we have reviewed claims data from health plans representing over 50 million covered lives nationwide and our analyses confirm that molecular testing constitutes at least ten percent of laboratory test volume and as much as 30-50 percent of a health plan’s spend on clinical laboratory. Digging deeper, we’ve discovered that 50-70 percent of paid claims for molecular testing involve women aged 18 to 65. Half of this testing is spent on infectious disease probes; the rest is mostly spent on prenatal or neonatal screening for genetic defects and gender-specific malignancy (e.g. breast and ovarian cancer). Testing varies significantly across lines of business. For example, prenatal genetic screening for high maternal age pregnancy appears to be more prevalent in employer insured plans than in Medicaid populations.

All health plans, public and private, need to take a proactive approach to managing this burgeoning area of testing. In doing so, their utilization management strategies need to address three key issues:

• Unique identification of each test. Current coding systems (i.e. CPT and HCPCS) have not kept pace with the technology. Ultimately, each unique test must have its own code. This level of specificity is required for successful utilization tracking.

• Evidence-based, clinical care guidelines and coverage determination. Reliable, objective and current information about the clinical utility (usefulness) of a test must be readily available for review at the time the test is being selected. Real-time decision support is not a luxury anymore — it is a necessity.

• Analytics. “What gets measured, gets managed” is a basic tenet of managed care. In our analyses, we see consistent results that the top 100 molecular tests constitute 75 percent of the total spend in this area; the next 150 tests add an additional 10 percent of spend; the remaining 15 percent involve an assortment of laboratory methodology codes that is nearly indecipherable. The good news is that benchmarks are emerging on a relative basis (e.g., percentage spend on BRCA as a fraction of the total spend) and, more slowly, on an absolute basis (e.g., number of tests expected per 1000 members).

Getting Started
To begin to measure and manage, subject matter expertise is essential; the language of molecular diagnostics is complex. An analytics baseline is also essential, despite the pitfalls and lack of precision in the legacy coding process. There is good news here. For the first time, a dashboard with metrics linking specific test volumes and costs to coverage and payment policy compliance is achievable.

Our team has developed a system of unique tracking codes embedded in a master test catalog that allows health plans to follow specific test utilization, such as I discussed earlier, over time with a very high level of confidence. Using this approach, it is now possible to correlate coverage determination policies with specific patterns of test utilization, and employ techniques such as targeted, automated pre-authorization for particularly expensive tests. Evidence-based guidelines are available for more than 400 molecular diagnostic tests (many of the more than 1500 known gene tests simply do not have enough suitable, objective data to analyze for clinical utility). In some cases, a guideline is not enough; access to a qualified genetic counselor is often a cost-effective step in ensuring evidenced-based medical decisions and utilization.

Tackling molecular diagnostics can seem like a daunting task. A good way to get started is to implement an action plan that includes:

• Establishing a baseline
• Documenting variation in ordering patterns (by line of business, geography)
• Establishing utilization targets for specific coverage determination policies (e.g. breast cancer markers)
• Comparing notes with other plans with a focus on improving quality (there are no anti-trust implications for improving quality!)
• Repeating your analytics; expecting and documenting your improvement
• Staying focused; this is not a "one and done" initiative. You must have the right approach with clear, measurable goals.

Staying a step ahead of emerging technology doesn’t happen by accident. Total gene profiling and molecular therapeutics are right around the corner. Considering the rapid growth in molecular and genetic diagnostic testing, it is critical for health plans to develop utilization management strategies today that employ a smart, targeted and recurring analytics approach.

About the Author: Douglas Moeller, M.D., is medical director at McKesson Health Solutions (Newton, Mass.).

By John P. Varricchio, Ernst & Young

As alternative sourcing models become more prevalent in the insurance industry, carriers are facing up to both the risks of failure and the requirements for success. The risks range from poor vendor selection and misconceived service level agreements (SLAs) to data security and business continuity issues. More fundamentally, insurers that lack full visibility into current cost and performance levels may choose the wrong processes for outsourcing.

From Risk to Reward
For these reasons, some insurers have found that their alternative sourcing decisions actually decreased quality and productivity and increased overall costs. In some cases, processes must be moved back in-house and alternative sourcing programs abandoned altogether. In this sense, the insurance industry is learning the same hard lessons as the banking and telecom sectors; back-office processes in finance (AP and billing) and IT (software development) are easier to outsource than higher-value and differentiating processes like claims management or customer service.

The truth is, successful programs require a disciplined, holistic approach, including a strategic concept and a comprehensive plan, to avoid these common risks. Successfully completed, these closely related steps set the stage for the subsequent transition and monitor phases (the subject of future articles). Most importantly, they help ensure that carriers hit their ROI projections sooner and establish effective successful operations that can be sustained for the long term.

Planning for Success
The concept phase helps insurers to identify the reason for outsourcing and which processes or functions they should outsource, assess current performance and costs, and set targets for new sourcing arrangements. A business case then defines specific objectives, clarifies the best sourcing model (e.g., captive centers, third-party or hybrid) and provides criteria for choosing vendors and locations.

An alternative sourcing plan builds off the concept phase to catalog and prioritize specific actions to achieve the goals. The plan defines governance models, addresses compliance issues, maps relevant processes and analyzes technology needs.

Critical Plan Components

Governance: Effective governance is necessary because alternative sourcing success requires operational insight and strong vendor relationships. Without good governance, insurers may not be able to spot emerging risks, identify problems soon enough to fix them or understand if contract terms are being met. In extreme cases, organizations may even lose control of processes.

Some may suggest that outsourcing will reduce their management responsibilities, but overall accountability in problem solving and decision making remain. It is the day-to-day management and execution that is outsourced. While there is no ideal model, cross-functional executive committees or sourcing councils led by the Chief Procurement Officer have proven successful with insurers. Beyond the necessary functional knowledge, such senior management groups have the “big-picture” perspective necessary to align sourcing programs and relationships to corporate strategies. Governance structures should also reflect sourcing models; management for a captive claims processing center will look different than management for outsourced accounts payables.

The leadership group should conduct risk planning, operational benchmarking and cost audits, and take the lead in determining SLAs and incentives, along with exit provisions, and the allocation of resources.

Process mapping and costing: Whether to optimize processes before moving them to a new sourcing model may be the trickiest planning question – and one that can only be addressed by full process mapping and cost assessments. These steps are necessary for all processes considered for alternative sourcing. Otherwise, it is impossible to set realistic goals for alternative sourcing, negotiate strong contracts or even accurately describe the required processes to vendors.

This assessment should go beyond simple cost and efficiency metrics to consider strategic importance, estimates of investments required to fix broken processes, the possibility of automation and the process knowledge and re-engineering capabilities of external providers. The planning phase is the time to answer these open questions in line with program objectives.

Compliance and controls: Through process mapping, insurers must clarify that all processes have the necessary controls and data capture mechanisms to comply with external regulations and internal procedures before they migrate to outsourcing vendors. Similarly, major tax, legal and regulatory issues may be raised by moving operations offshore. Here again, vendor relationships play a role; insurers must trust their sourcing providers to meet the industry’s high standards.

Data and technology: While many outsourcing providers offer advanced technology platforms, insurers must carefully examine data management, security and backup protocols, as well as overall infrastructure quality and system compatibility. The potential risks, including lost data and security breaches, are tremendous.

Success by Design
Many early adopters of outsourcing leapt to realize potentially huge labor costs savings, before sufficiently looking at all the risks. However, insurers that invest the time to develop a highly detailed sourcing plan gain a clearer understanding of those risks, as well as a more realistic sense of the opportunity. Effective plans define precisely how the value proposition in the business case will be fulfilled greatly increasing the likelihood that potential value ultimately reaches the bottom line.

About the Author: John P. Varricchio is a partner in the insurance sector of Ernst & Young LLP's Financial Services Office. He is based in New York City and can be reached at (212) 773-7645.

By John P. Varricchio, Ernst & Young

Over the years, academic studies have found that all types of projects — corporate re-organizations, new technology implementations, process re-engineering — fail to deliver the expected ROI. Depending on the study, the percentage of subpar projects is 50 percent to 70 percent — a huge number. Certainly, alternative sourcing initiatives in the insurance industry belong in this disappointing category.

Learning from early adopters
The common challenges are well known: inappropriate sourcing structures, substandard infrastructure in low-cost countries and insufficient cost and risk modeling, to name just a few. Weak program management, poor cultural fit with vendors and insufficient training are also recurring themes. When insurers overlook these potential issues in their haste to reduce labor costs, they are more likely to end up “backsourcing” outsourced processes or pulling back from low-cost countries. Still others end up with bloated, low-performance captive centers that resist attempts at optimization and never deliver the promised value.

A well-planned, skillfully executed transition can alleviate many of these issues. Building on the strategic concept and a thorough plan, an effective transition smoothly and non-disruptively establishes the new operating model and lays the foundation for long-term success.

Right model, right approach
Effective transitions uniquely fit the specific sourcing model chosen by insurers. For instance, when basic accounting functions are outsourced to a third party, companies must ensure that the vendor understands basic data specifications and system integration points, as well as corporate policies for paying vendors, matching purchase orders and the like. However, much of the work will be automated and relatively little training will be required.

Insurers moving more complicated processes such as claims or customer service functions will most likely choose a captive center and face very different transition challenges. There will be much greater emphasis on recruiting and hiring, training, communication and defining an optimal customer experience — all of which must be factored into the transition plan. Upfront investment will be higher, and more management time will be consumed, as befits these higher-value processes.

It is important to note insurers’ historical preference for captive models. This would seem to make sense, given the industry-wide aversion to operational and compliance risk. But in terms of the greater capital and management requirements and the difficulty of reaching economies of scale, captive centers are often a riskier option.

Transition plans must also be tailored to fit vendors. More experienced third-party providers can play a larger role in transitions, offering insurers access to process re-engineering, best practices, greater scale or superior technology. With more providers offering unique value propositions — targeted functional expertise vs. lowest cost, for example — there’s no reason that insurers shouldn’t take the time to find the best fit.

The value of program management
Strong program management capabilities are another hallmark of effective transitions. In fact, in our experience, alternative sourcing success directly correlates to the presence of a strong program management office (PMO). It’s somewhat surprising, then, that most companies under-invest in the necessary resources and training. Without PMOs to reinforce milestones and accountability, basic technology breakdowns and process bottlenecks that occur during transitions may never be solved, or only solved through workarounds. Left to linger, these issues can threaten the entire business case.

During transition periods, the PMO serves as the first line of defense against these situations, escalating issues quickly and in line with pre-defined processes. If necessary, contingency and backup plans must be executed. In this way, PMOs “operationalize” governance models and working agreements.

Mastering the technology and human factors
Technology plays a critical role in transitions. Organizations must model hardware, software, network and storage needs for new operations, and define IT support processes. Data management protocols and security standards should be clarified, and cutover processes rigorously tested, especially if significant integration or software updates are required. Bad data, slower processes and higher error rates can result if technology issues are not managed effectively during transitions. Over the longer term, that can translate into lower customer satisfaction and reduced management visibility into performance.

Lastly, it is important to recognize the value of various change management and human resources best practices. Effective communication and robust training programs help streamline transitions, strengthen vendor relationships and minimize cultural differences. Some insurers co-locate existing staff with new workers so relevant knowledge can be handed off – an especially good approach for more complex processes, like claims processing.

Most importantly, effective communication and training programs can reduce worker turnover, which has been pushing wages steadily upward in India and other low-cost countries and, therefore, cutting into labor cost savings. In other words, so-called “soft” cultural issues actually speak directly to “hard” bottom-line metrics.

Transition in context
A case could be made that transition is ultimately the most important step in alternative sourcing. After all, even the strongest business case will fail if the transition breaks down. Alternative sourcing is more like a long-term journey with each step building on the previous one. Successful transitions are enabled by a strong strategic concept and comprehensive plan, and extend through effective monitoring of ongoing operations. Collectively, these steps allow insurers to reach their destination of a low-cost, high-performance sourcing, while minimizing risks and maintaining strategic alignment along the way.

About the Author:John P. Varricchio is a partner in the insurance sector of Ernst & Young LLP's Financial Services Office. He is based in New York City and can be reached at (212) 773-7645.

By John Lee, Merkle

Part I of this two-part series on creating “Customer Lifetime Value” currency described how insurance providers can establish a company-wide “customer value currency” or valuation standard that takes into account the entire customer. Part two describes how an organization’s customer value currency can be used throughout the enterprise to improve marketing results.

For many insurance carriers, results measurement and analysis occurs most often in acquisition efforts, at a single point-in-time at the campaign level, and only within one channel. To maximize the value of the customer portfolio, insurers must develop a customer value currency, a shared standard that all groups – including marketing, sales and product management – can agree to and use to help ensure dollars are spent in the most impactful way possible.

Customer lifetime value is a critical part of this equation. It is one of several factors that determine what each customer means to your organization. Once a shared metric is established, it is possible to use customer value currency as a core part of an integrated marketing approach.

Integration is the Key
The missing element required to meaningfully create and manage a customer value currency boils down to a single word – integration. Maximizing customer value requires that a number of critical capabilities are integrated across the enterprise.

These capabilities include:

1. A common customer value currency metric that is shared across all marketing, products, sales and service functions
2. A common segmentation scheme that allows customer valuation and treatment decisions to be managed across marketing, distribution, sales and service
3. An integrated marketing data infrastructure and measurement framework that provides the required analytic power and reporting tools
4. A cross-functional team from across the enterprise that prioritizes and manages initiatives based on a shared customer value currency

Customer Segmentation Integration
While the ultimate goal of any customer-centric organization is to have a “one-to-one” relationship with its customers, even the most successful ones struggle with managing their customer portfolio. Effective marketing requires a meaningful enterprise customer segmentation approach that leverages attitudinal, behavioral and demographic dimensions at the household level. The segmentation approach must help identify similar customers who think about, purchase and consume the product set and brand. These factors directly correlate to the customer’s value to the organization over their lifetime with the carrier.

By utilizing internal customer data, custom research, syndicated panels and compiled data sources, insurance marketers can bring together a segmented view of the customer that contains preference and value data. This segmentation can be integrated into all critical marketing, sales and service systems to determine how much to spend, the most powerful message and the best channel for each customer.

Integrated Marketing Infrastructure
A major challenge is a lack of supporting technology infrastructure and data to fully leverage the organization’s customer value currency.

To rapidly generate momentum and measurable returns, companies must ideally develop and manage their customer data within a marketing-specific infrastructure. Marketing programs can first focus on proactive, outbound contact centers and transactional initiatives that do not require heavy integration with existing systems.

As successes mount, shift more marketing programs to the core customer management database, or feed information from the Internet and other channels to create a fuller picture of your program and your customers. Where IT resources and technology experience are short, seek outside help for solution development and hosting.

Creating a Measurability Framework
Insurance carriers spend billions each year to acquire customers and increase customer loyalty. Yet most initiatives fail to deliver the expected results for the simple reason that no direct, measurable connection can be made between each initiative and the resulting consumer behavior.

Drawing a direct connection between various marketing programs and their results is a vital step. This connection brings a new level of accountability to marketing, making it possible to analyze and adjust retention and affinity marketing programs so that the focus is on spending on customers that yield minimally acceptable policy value over time. Without a measurability structure, insurance carriers have no clear and fact-based way to determine if they are targeting the best customers possible.

Removing Organizational Barriers
While technology is often cited as a barrier to integration, the reality is that organizational dynamics are the number-one inhibitor. The ownership and accountability of managing the customer value currency cuts across multiple functions including marketing, sales, service and product management.

Each function must be involved in the strategic planning process, in which objectives are aligned and cross-functional customer programs are prioritized. This process should include an executive steering committee and a working committee whose guiding principle is, “invest marketing dollars where it generates the maximum incremental value.”

With this charter and executive level sponsorship, a company can begin to successfully integrate customer management and marketing best practices and return significant value to shareholders.

About the Author: John Lee is vice president and general manager for insurance at customer relationship marketing agency Merkle.

Part I of a two-part series on creating “Customer Lifetime Value” currency.

By John Lee, Merkle

In today's market conditions, insurance sales and marketing executives are often faced with a difficult "Catch-22": How to balance continued short-term policy acquisition growth with long-term profitability, customer retention and loss ratios. While marketing is often seen as the best way to gain the advantage over the competition, the reality is that the customer most responsive to marketing messages – from acquisition - to retention - to cross-sell – is often not the customer most likely to drive the greatest profit for the provider. In fact, often the inverse is true.

This fact is forcing many carriers to re-evaluate how they make marketing decisions. They are now focusing on each customer's overall or holistic value to the organization, rather than on partial metrics, such as response rates or retention. To that end, insurance providers are asking themselves how they can establish a company-wide “customer value currency” or valuation standard that takes into account the whole customer. This valuation would also integrate predictions regarding acquisition cost, retention, expected premiums and loss into a meaningful lifetime value metric – a metric that can then be used as a powerful decision-making tool.

While it may sound straightforward, numerous organizational, operational and analytic challenges exist that make executing this simple-sounding premise difficult. Yet, it is possible to determine a clear, enterprise-level customer value metric and establish an approach to driving informed decisions that can, in turn, maximize each customer’s value across sales, marketing and product management.

The Transition to a Customer Value Currency
For years, the ability to tie customer response rates to a specific marketing campaign provided a powerful tool in managing profitability. The next evolution of accountable marketing incorporates the idea of a customer value currency.

This shift means no longer simply asking, “How do I most efficiently acquire new customers?” It means asking:
• “How do I acquire and manage customers who will generate the greatest value over the life of our relationship?
• How do I prioritize my marketing resources to focus on the customer segments and programs that will generate the greatest profit?
• How do I measure the return I am making on customer investments over time rather than at a single point-in-time?”

Creating a Common Customer Value Currency
Many organizations have already developed one or more definitions regarding the value that each customer brings to the organization. For example, most insurance companies have a risk-based policy lifetime value segmentation schema, developed by product management and underwriting, to price policies at the point-of-sale. Within the same organization, marketing has likely developed another model that incorporates persistency and predicted premiums along with corresponding response and conversion rates by segment.

The issue is that to prioritize and manage customer value across the customer lifecycle, a common definition must be utilized across all divisions within the company. This challenge tends to be more organizational than technical in nature. A cross-functional team should develop a common customer lifetime currency metric that will be applied across the organization. This metric need not be perfect and all encompassing to be effective. It is better to start with a manageable definition and let it grow in sophistication over time.

An insurance company could develop its customer value currency definition using easily predictable dimensions, such as average premium for a single product and retention rates. To enhance the effectiveness of the customer currency metric, other factors, such as loss and multi-product premiums, can be added later. In one case, an insurance carrier used the average claim amount of each risk tier as a starting point, rather than predicting future claims at a customer level.

Defining a shared enterprise-wide customer value currency is essential, but it is only the first step to long-term success. Implementation puts this metric into action to achieve measurable results across the organization.

Part two of this article series will describe how an organization’s customer value can be integrated and fully used throughout the enterprise.

About the Author: John Lee is vice president and general manager for insurance at customer relationship marketing agency Merkle.

By Eric Burgener, InMage

The Sarbanes-Oxley Act of 2002 (SOX) includes a number of provisions relating to how insurance companies must manage their data. SOX legislation requires companies to establish formal processes across a number of areas and demonstrate they have the procedures in place to execute against those processes. In the area of disaster recovery, simply having a plan is sufficient to meet compliance requirements, but it may not hold up if a catastrophic event actually occurs.

The bottom line is that more and more, SOX compliance standards are not enough to provide the kind of recovery most insurance companies need. SOX compliance sets a baseline from which future improvements can be made, but increasingly stringent IT infrastructure recovery requirements will be driving insurance companies to look at newer recovery technologies to safeguard their businesses.

To create your disaster recovery plan, it’s wise to use a five-step process to evaluate your exposure and implement the solutions that will cost-effectively meet your recovery requirements:

Step 1: Understand your business priorities. Create a list that includes all major business process areas, prioritized by criticality, and then map those business processes to the relevant supporting IT infrastructure.

Step 2: Assess your recovery requirements. Group the business processes with similar recovery requirements into tiers, and then determine what specific recovery requirements you need to meet for each tier. To do this most effectively, you need at least two tiers, since you do not want to implement high end recovery infrastructure for non-critical applications. Quantitative metrics to measure your recovery requirements include recovery point objective (how much data you’re willing to lose on recovery), recovery time objective (how quickly you must recover), and recovery reliability.

Step 3: Match the right solutions to your recovery requirements and deploy your solution(s). Evaluate the ability of existing technologies to meet recovery requirements at each tier, keeping in mind that you will need to recover both data and applications, both locally and remotely, to meet the range of “failure” scenarios. Different technologies may be implemented for each recovery tier.

Step 4: Test your DR plans. IT infrastructure evolves over time through configuration changes, tuning, maintenance, and scaling considerations, and any one of these can potentially impact your recovery processes’ ability to perform predictably, particularly in replicated configurations like those used for DR. To ensure your recovery processes operate to your specifications you need to test them on a regular basis (at least twice a year).

Step 5: Create a DR run book. A “run book” includes workflows that support administrative processes, and creating a DR run book is the first step in creating a set of repeatable processes that result in predictable recovery outcomes. A run book ensures that the same carefully designed and tested recovery processes are followed no matter who is doing the recovery, and provides a baseline against which incremental improvements can be made over time.

Getting the Most Out of Your DR Plan
If your primary concern is SOX compliance, you don’t necessarily need to go through the steps above – you just need to document a DR plan. But if you want both an effective DR plan for your business and SOX compliance, the five-step process makes the most sense.

Most enterprises, regardless of size, have a set of “tier 1” applications that must be recovered within no more than a few hours, and with minimal data loss, to keep the business running. Legacy tape-based DR plans that make weekly copies of production data to tape and ship them to off-site locations cannot meet these types of requirements. In fact, taking into account that one copy per week is shipped to an off-site location and ground transportation delays, you’re likely to lose a week or more of data and take almost that long to get things up and running again. A tape-based DR plan is SOX compliant, but many enterprises would be out of business before such a plan could recover their business operations.

If you’ve already been thinking about making changes to your local backup operations to meet increasingly stringent recovery requirements there, you’re probably looking at the possible use of disk as a recovery media. What’s interesting about disk is that, in addition to the benefits it provides in terms of backup/restore performance and recovery reliability over tape, it also provides access to a number of newer recovery technologies that will allow you to cost-effectively re-make your recovery plans. These technologies include server virtualization, continuous data protection (CDP), asynchronous replication, automated application recovery, wide area network (WAN) optimization, and storage capacity optimization technologies like data de-duplication and others.

Integrated recovery solutions that have come on the market in the last several years deploy these technologies to create a single solution that solves the problems associated with tape-based backups while at the same time handling multi-site DR requirements. The thinking here is, if recovery is a single continuum that includes data and application recovery, both locally and remotely, then wouldn’t it be best handled with a single solution?

In the insurance industry, most companies have a set of critical applications that will benefit from these technologies. Candidate application environments include messaging systems such as Microsoft Exchange, Blackberry Enterprise Server or Lotus Notes, databases from Oracle, Sybase, IBM and others, and some file system-based environments. If your recovery requirements for these applications specify recovery in less than 8 hours for “local” issues like file recovery, or less than a day or two for “remote” issues like DR, you’ll want to evaluate what next generation recovery technologies have to offer.

If you’re going to go through the motions of putting a DR plan in place for SOX compliance, it’s worth taking the additional time and effort to ensure it meets all of your business drivers. Uninterrupted operations, recovery times and overall performance of business systems are not just compliance issues for the insurance industry – they have everything to do with your company’s overall success and competitive edge.

About the Author:Eric Burgener is the senior vice president of product management for InMage. He can be reached at eburgener@inmage.com.

By Paul Camille Bentz, former CIO, AGF-Allianz

I started my tenure as Group CIO of AGF, the French arm of Allianz, at a time when AGF was merging with Allianz. Our IT organization was struggling to support the massive change while continuing to deliver an acceptable level of service. More than a thousand developers were working on software changes daily.

We were in crisis mode. The first thing we did was to get the right people with the right responsibilities to the right projects. This meant focusing on processes, teamwork, and skills.

Once the worst part of the crisis had passed we concentrated on creating a concrete operational plan for the mid to long term. This was a multi-year exercise involving all the business units and the IT organization. We clearly needed changes in the governance model, and this was the next step in the plan, along with the introduction of a comprehensive and reliable management information system to explain to our business partners where the IT money went and the value these investments delivered.

As with any merger in the financial industry, large cost savings are committed to up front and IT is clearly identified as a major generator of these savings. We felt a great degree of pressure heightened by intense scrutiny from our business partners, the press, and our shareholders.

The rapid execution of the merger left us very little time to fully develop the target architecture of the merged systems. As noted above, the difficulty of merging different types of contracts forced us to run multiple systems to support the same insurance product. The merger resulted in a highly-modified portfolio of around 200 applications, exposed a lack of skills in some areas, and added substantial infrastructure costs. We had to tackle our skills shortage and escalating maintenance costs in the first part of our plan forward.

By focusing on pooling our maintenance resources, prioritizing maintenance activities, and tightening up our maintenance processes, we were able to capture double-digit percentage savings in application maintenance. In particular,

• We put an end to the usual one-application-one-support team scenario where headcount is always in excess and procedures tend to be local.
• The early segmentation of errors reports helped us to concentrate on high priority problems and improve the user experience.
• Maintenance budgets (OPEX) were aggressively reduced to avoid money spent on changes which could (and should) be managed under the CAPEX budget.

A significant savings of 15% was obtained in just one year with external help to monitor the change and the savings. An interesting feature was that the consultancy had 100% of its fee at risk, to be paid only if and when the results were delivered!

Our next challenge was to manage the large volume of business demand while keeping operational expenses going down. We tackled this challenge by focusing on the size and quality of the application portfolio. To do this we took a two-prong approach:

• We classified and described the portfolio in a systematic manner both from a business perspective (size of business, meeting requirements, and compliance to regulations) and a technical one (durability of technical components, total cost of ownership including infrastructure, and operational reliability)
• We created portfolio rationalization scenarios to retire, modernize or re-architect the right mix of applications with a detailed ROI for each scenario.

While doing this rationalization exercise it became clear that we needed to measure and benchmark the size and quality of the applications in our portfolio. To do this, we used the CAST Application Intelligence Platform (AIP). The CAST AIP gave us precise measures of the size, quality, and complexity of our critical applications. It highlighted hot spots of cost and value leakage due to poor performance or lack of modifiability. It was automated and required very little administrative intervention once set up.

In addition to providing us with automated application intelligence – information that we could act upon to make effective rationalization decisions – the CAST AIP adheres to the world-wide ISO 9126 standard for defining application quality attributes, giving us the ability to benchmark our applications consistently, year over year. We also utilized the CAST AIP to define and measure application quality and size, providing us with deeper insight than traditional static code analysis products. As a result of our portfolio rationalization, we achieved another double-digit percentage reduction in our running costs, including the operating cost of our infrastructure.

To monitor and control application quality, we gave our development teams access to the CAST AIP. This enabled them to monitor the quality of the software they produce against clearly defined quality targets. By precisely pinpointing the root causes quality lapses, our developers now had a way to find problems early and fix them once and for all.

Having precise and objective quality measures also enabled us to create more effective SLAs with our provider of infrastructure services. It gave all our stakeholders, including business unit general managers, a common language and one view of the truth about the cost and business value of the application portfolio.

This one view of the truth that is easily accessible to all stakeholders was (and continues to be) essential to managing the large transformation of our application portfolio. The application quality approach, combined with a process maturity improvement program (CMM), created a solid foundation for continuous productivity improvement.

I retired from my post of CIO of AGF-Allianz in 2007 but still stay in touch with my former colleagues. It pleases me to see that the plan we forged and executed to manage the large merger continues to deliver strong IT and business results. It is helping us thrive in these difficult times.

The savings achieved over 5 years reached more than 30% of the IT budget. Moreover, and perhaps more important, we delivered an organization in better shape at the end the process, able to move forward with pressing business initiatives and well prepared to face another crisis.

Conclusion

As we recover from the liquidity crisis and face waves of new regulation, the ability to scale rapidly is critical to insurance companies. Scale enables us to spread risk more effectively, segment smartly for higher premiums, and keep costs competitive.

But scaling, whether it is through M&A or organic growth, requires a new level of responsiveness and cost efficiency from the IT function. At the same time, it adds a substantial amount of complexity to the very applications that must turn these business goals into reality. The fundamental tension between more complex, yet more responsive and cost efficient has to be dissolved if our business goals are to be achieved.

At AGF-Allianz we dissolved this tension by focusing on measuring and monitoring application quality throughout the life cycle. It enabled us to simultaneously become faster, cheaper and better.

About the Author: Paul Camille Bentz joined AGF in April 2000 to head the IT organization following the merger of three insurance companies acquired by Allianz. The merger was followed by a rationalization program to reduce dramatically the costs of IT while delivering new solutions. He then served as Regional CIO for Allianz, advisor to the Chairman of AGF, and member of the Allianz Executive Board. Before AGF, Paul was CIO of Paribas, where he implemented a global organization with more than 2100 staff worldwide to support all the business areas of the Investment Bank. Paul also served in IT leadership roles for Credit Lyonnais and Air Liquide in several European countries over the course of ten years. He retired from Allianz in 2007 and now runs his own consulting company, while spending time with his wife, three children and three grandchildren. He can be reached at pcbconseil@orange.fr .

By Paul Camille Bentz, former CIO, AGF-Allianz

The business of insurance (property and casualty, health and life insurance) has always been IT intensive. IT plays an integral role in insurance products – in many cases it is the product. Hence, the insurance industry was one of the earliest industries to integrate IT into its business model.

Starting in the early 1970s, the insurance industry has relied on massive applications programmed in COBOL and running on mainframes. By any measure, these applications are spectacularly successful – they continue to perform well under heavy transaction loads. So much so, that most companies tread very carefully when it comes to enhancing these applications. But business conditions continually push for such enhancement, which in turn have made the insurance IT portfolio increasingly complex.

• Competitive differentiation pressure drives the rapid development of new products targeted towards specialized market segments. This rapid development creates a mishmash of architecture, a constellation of interconnections and little useful documentation.
• A patchwork of continually changing complex regulation leads to multiple variants of the same product, customized to comply with local regulations.
• Different market segments dictate the need for distinct product lines with little overlap, creating silos of product lines and the IT skills necessary to support them.

These business conditions create IT portfolios that have a distinct signature: separate product lines, each running on its own infrastructure with its own specialized development and support teams. Within each of these product lines, considerable complexity is created by the multiple variants of the same product, the mix of new (.NET, Java) and old (COBOL) technologies, and a tangle of poorly-documented interconnections due to rapid and repeated enhancements.

Making changes to these highly inter-connected applications in response to business needs takes more time and costs more money than anyone can accept. Moreover, such changes escalate business disruption risks due to performance and security lapses.

The lack of expertise compounds the problem. Ideally these changes should be closely governed by the architectural roadmap. However, the reality is that these changes outpace the skills of technical and business SMEs who are organized along business silos, making it difficult to support inter-connected systems.

From the CIO’s perspective, the proliferation of application technologies and inter-connections has damaging ripple effects. Not only does it drive up application maintenance costs, it also drives up the cost of the infrastructure on which these applications run. When infrastructure management is outsourced, the thresholds and targets outlined in SLAs become harder to enforce because variance from these targets occurs in large part due to complexities in the application-infrastructure stack, something that is outside the vendor’s control. Vendor costs become significantly (and justifiably) higher, cutting into the cost savings of outsourcing.

Ironically, the same business forces that necessitate lower cost, higher revenue and higher profit margin drive higher cost and lower performance in the IT applications that are integral to achieving these business goals.

In the next section we see how software quality is critical to solving this conundrum.

To stop the Insurance IT engine from seizing up, we must be able to rapidly create and enhance products and open connections between previously siloed products, all without reducing service levels or increasing costs. The only way to do this is by focusing on application quality. A U.S. Supreme Court Justice famously said about pornography, “I don’t know how to define it, but I know it when I see it.” The same might be said for application quality. But without a clear definition of application quality we simply cannot achieve our business goals.

The Risks of Rapid Margin Growth: Software Quality Problems

The knowledge to develop, support and enhance these systems will take time to acquire, and responsiveness to business needs will be slowed. There is a significant increase in the risk of performance, security and stability, resulting in drains in cost and business productivity at a time when companies can least afford these losses.

The traditional approaches to managing these risks --- replace, wrap and integrate – are all made harder by these new activities. Let’s take a moment to understand why these longstanding problems require new solutions.

Replace. Given the mishmash of systems of different ages, technologies and languages cobbled together over the years to run a product line, it’s tempting to scrap it all and start again. In most cases this is unrealistic. Neither the business nor IT has the stomach, money or time to do this.

Wrap. A common way to squeeze new functionality out of old systems is to provide a service interface through which the old systems can be safely accessed without any need to touch the “guts” of the old application.

Integrate. Functionality is added or enhanced through connections of data, interfaces, logic and infrastructure with other systems.

No matter the approach, the main software quality problems in large, multi-platform, multi-language insurance applications are the following:

1. Lack of Documentation. There is very little useful documentation of existing systems. This considerably slows the delivery of new capabilities and makes their performance more unpredictable.

2. A Tangle of Inter-Connections. No single person or team can have an end-to-end view of the interconnections between application components, both those within the application and those extending out to other applications. These interconnections produce complicated interdependencies of data and functionality between application components. These dependencies can be sensitive to the time sequence in which they should occur, adding another layer of complexity to these inter-connections. This makes it very difficult to know if everything is working as it should.

3. The Inadequacy of Testing. Testing alone is insufficient to solve the quality problems caused by increasing complexity.

a. Testing is usually done too late to catch and rectify design bottlenecks that throttle application performance and responsiveness.
b. Even when testing is done early and often, it will not be able to catch problems that span across platforms and languages.
c. Nor will testing catch all the problems that arise due the context in which a component operates even though the component by itself is thoroughly tested and is of high quality.
d. Contextual problems are particularly pernicious when the conditions in which the application operates (hardware, usage patterns, transaction volumes) change, or the software itself is changed (patches, configuration changes, minor enhancements). No amount of performance testing can reveal these problems – something more than performance testing is needed to evaluate the quality of application software.

4. Lack of a Quality Measure. Because organizations don’t have a way to define and measure software quality, it’s hard to know how to size the risk of quality problems, how to prioritize fixing them (you can’t, and probably shouldn’t, fix every single one), and how these fixes are contributing to the overall quality of the application (is it trending in the right direction?).

5. Lack of Expertise across Application Silos. Developing and supporting applications that cross technology and business process boundaries requires knowledge not present in the ways teams are usually organized and trained. The cost advantage of application or infrastructure outsourcing is quickly eroded by the extra hours that outsourcers spend in supporting these complex applications. Whether the organizational boundaries are internal or external, teams are not set up to coordinate effectively to develop and support these applications for three main reasons:

a. Incentives are misaligned. For example, the Infrastructure group is rewarded for stability, while the Applications group is rewarded for cutting-edge functionality and speed of delivery.
b. Metrics are misaligned. For example, the Infrastructure group tracks availability and network latency as measures of performance, while the Applications group measures performance in terms of successful completion of functional and performance tests. The problem is that both sets of metrics can be “green”, yet performance from a business-user's standpoint can be severely impaired. The lack of a shared language of performance blocks a true end-to-end view of application performance.
c. Resourcing priorities are misaligned. When one team needs another to work on the application, the other team has different priorities.

Overwhelming as they seem, this long list of software problems can be solved with the right focus on quality. In the final part of this three-part series, I will explain how we solved these problems at AGF-Allianz with a focus on specific quality measures.

About the Author: Paul Camille Bentz joined AGF in April 2000 to head the IT organization following the merger of three insurance companies acquired by Allianz. The merger was followed by a rationalization program to reduce dramatically the costs of IT while delivering new solutions. He then served as Regional CIO for Allianz, advisor to the Chairman of AGF, and member of the Allianz Executive Board. Before AGF, Paul was CIO of Paribas, where he implemented a global organization with more than 2100 staff worldwide to support all the business areas of the Investment Bank. Paul also served in IT leadership roles for Credit Lyonnais and Air Liquide in several European countries over the course of ten years. He retired from Allianz in 2007 and now runs his own consulting company, while spending time with his wife, three children and three grandchildren. He can be reached at pcbconseil@orange.fr .

By Paul Camille Bentz, former CIO, AGF-Allianz

Three primary factors together shape the current insurance business environment.

Regulatory Uncertainty

First, a precipitous drop in investment income due to the recent liquidity crisis has put intense pressure on insurance companies to find new sources of revenue and margin growth. Second, and related, the new (and evolving) capital reserve regulations for financial institutions severely constrain earning potential by restricting leverage. Third, the crisis has left us with plenty of regulatory uncertainty. In the United States, there is uncertainty about health care reform and regulation over banking and financial services. In Europe, the debate on how to apportion the public and private burden of health insurance continues to evolve, causing business and regulatory uncertainty.

Intense M&A Pressure

A reflexive response to uncertainty is to keep a tight rein over costs, placing a premium on margin growth, not simply revenue growth. In such an environment, companies that have the scale and are fortunate enough to be cash rich will continue to grow revenue and margin through M&A. Scale is vital to penetrate new networks of customers across geographies and along value chains, handle the more stringent capital requirements, manage the regulatory uncertainty, and squeeze out costs.

As the insurance industry experts at Towers Perrin observe, “We expect insurers to consolidate for scale and diversification, adding product lines and management talent. However, given the well-publicized difficulties companies are having borrowing and raising capital, deals are likely to be limited to those that are already cash rich or have special access to financing.”

M&A, while essential for meeting business objectives, adds a substantial amount of complexity to an already complex set of insurance applications. When companies merge their systems, they usually end up with multiple systems for the same product. The reason for this unwanted multiplicity of systems lies in the nature of insurance contracts. Contracts for the same product are written differently by different companies. Even minor differences in contract period, legal covenants, or other details can mean substantial differences in administrative, legal, and claim management processes. This means maintaining separate systems until one of the products can be “run off,” in other words, stopped from being sold further.

The Promise of Untapped Organic Growth

Another promising avenue for increasing revenue and profit margin is to increase the cross-sell ratio — i.e., the number of products sold per customer — based on known customer preferences and behavioral patterns. Applications that mine customer data for these patterns are already widely used in claims management and pricing applications. This information provides insurers with intelligence that enables them to better segment and market their products to existing customers.

Cross-selling requires ties between different applications, each with their own hardware, databases and application servers. This increases the dependencies that applications have on others in the portfolio — dependencies on data, interfaces, functionality and infrastructure.

What This Means for the IT Portfolio

To support these business initiatives, insurance IT must rapidly develop new products and open connections (data, transaction documents and business functionality) between existing products.

However, certain characteristics of the existing insurance IT portfolio make it very difficult to do what’s necessary to achieve business goals.

In Part II of this three-part series I will describe these characteristics and explain how they impede the achievement of the pressing business goals.

About the Author: Paul Camille Bentz joined AGF in April 2000 to head the IT organization following the merger of three insurance companies acquired by Allianz. The merger was followed by a rationalization program to reduce dramatically the costs of IT while delivering new solutions. He then served as Regional CIO for Allianz, advisor to the Chairman of AGF, and member of the Allianz Executive Board. Before AGF, Paul was CIO of Paribas, where he implemented a global organization with more than 2100 staff worldwide to support all the business areas of the Investment Bank. Paul also served in IT leadership roles for Credit Lyonnais and Air Liquide in several European countries over the course of ten years. He retired from Allianz in 2007 and now runs his own consulting company, while spending time with his wife, three children and three grandchildren. He can be reached at pcbconseil@orange.fr .

By Paul Camille Bentz, former CIO, AGF-Allianz

Introduction

Current economic conditions have put insurance companies in a bind. The pressure to recapture pre-2008 revenue and profit margins is intense. But achieving these business goals requires rapidly developing IT applications and enhancing existing ones in ways that escalate IT complexity. This additional complexity makes applications more susceptible to lapses in performance, stability and security. Hence, the very business pressures that require the Insurance IT engine to work flawlessly end up causing that engine to sputter and seize up, making it impossible to achieve revenue and margin goals.

In this three-part series, I will attempt to solve this paradox.

Part I will describe the business pressures insurance companies face, and list three ways to address them.

Part II will explain what this means for the IT portfolio – what types of applications are required and how this increases the complexity of the IT portfolio.

Part III will discuss the solution. From my experience as CIO at AFG-Allianz I learned that the complexity problem can be solved if specific software quality problems are resolved. I explain what these specific quality problems are and how we tackled them at AGF-Allianz.

Click here to proceed to Part I.

By Hari Raghumandala

Insurance carriers that leverage analytics can increase their top line as well as their bottom line positively. But, there are certain things that the carriers should focus on in order to maximize the potentially enormous benefits of advanced information analytics.

Advanced information analytics is gaining momentum is every industry vertical, particularly in insurance, financial services, healthcare, retail industry verticals. Insurance sectors are making advanced information analytics as one of the top agenda items for coming years. Many insurance carriers already started investing on research and analytics tools like SAS, SPSS, etc for their actuarial, research, marketing, product development and claims investigation departments.

The use of advanced analytics, especially predictive analytics has been a predominant factor in carriers' efforts to gain competitive edge in the insurance market. It is no longer easy to gain new customers or retain existing customers as every insurance company, having gone through the recession period, is launching aggressive new strategies and innovative thinking to capture market share. In response, many companies are pursuing innovation and operationally efficiency by predicting future market trends to sustain competitive advantage for the long term.

Maintaining the status quo with regard to reporting and analytics doesn’t position carriers well for the future marketplace. This is the right time for the insurers to start embracing advanced analytics, such as predictive modeling solutions. Predictive analytics in particular can help the insurers find new demographic segments for selling new policies; improve customer retention, loss control and fraud detection; maintain loss reserves, craft better pricing models and launch successful marketing campaigns. Data mining and predictive analytics are shaping up better than ever to address these business needs and help business to achieve their goals more effectively, accurately and cost-efficiently.

Simply buying vendor products isn't enough, as business rules and available data are essential success factors in the deployment of predictive analytics. So what should the Business leaders, CIOs and CTOs do to support critical data needs for the predictive analytics and other kinds of advanced analytics?

The information management (IM) system or the data warehouse acts as the primary information feeder to predictive models and other kinds of advanced analytics. This makes the information management systems more and more important than ever before to play a key role in the realm of predictive analytics.

The quality of outcome or accuracy of the future predictions from these predictive models is directly linked to the data that is fed to the models. There are four important aspects of data that the IT and business leaders should focus on:

1. Maintaining comprehensive, complete and consistent sets of Master data domains (Customer, Product, Agents, etc)
Invest in Multi-domain Master Data solutions. Creating and maintaining a master data domain will bring completeness, conformity and richness of detail to your critical business data. It captures a lot of variables and histories, which in turn help predictive models to find accurate future patterns. This will also increase the range of segmentations and data relationships prior to the model building phase.

2. Quality of the data fed into predictive models
This is one of the dimensions that you can correlate to the accuracy of your predictive model output. If the underlying data is of poor quality, you can not expect good outcomes. Accordingly, companies must invest on the data quality solutions.

3. Data quality in OLTP systems
In this data-driven world, both Information management systems as well as transactional systems (policy admin, claims admin, etc) should be responsible for maintaining high data quality. Fixing data quality issues in just one place will not help. There should be quality controls and quality checks in the online transaction processing (OLTP) systems as well, in addition to data warehouses. Historically there have been few serious attempts made to talk to the OLTP systems to improve the data quality in these source systems. Now is the time to address that issue, through a collaborative effort between senior IT and business leaders.

4. Data quality controls and measurement in the data management systems
In order to monitor and measure data quality, there should be some data quality controls in place to ensure that data warehouses are delivering high-quality data into the predictive modeling tools.

Data warehouses have been in existence for decades, but, the users of data never felt high confidence in the information that is being delivered to them for the reporting and analysis. The reasons are many, but, poor data quality, incomplete data sets and inconsistent results stand at the top, as the reasons for customers’ low confidence levels. The same reasons will haunt you, if you don’t fix them, before implementing predictive analytics solutions.

In conclusion, you should focus on the following up front to better position your information warehouse to better serve the needs of advanced analytics like predictive analytics, to gain the competitive advantage and sustain in the market place:

• Build and maintain complete, conformed and high quality master data domains/entities
• Maintain high data quality in the data warehouse as well as OLTP systems
• Monitor and publish the data quality matrix to all warehouse users; thus improving confidence levels and gain trust in the information delivery systems
• Finally, improve the accuracy of predictive analytics, it’s usage and ROI by delivering better data in to these advanced analytics systems, in turn, achieve better market predictions as a result

About the Author: Hari Raghumandala is an independent consultant specializing in insurance information architecture, business intelligence, data warehousing and enterprise data modeling. His engagements at multiple insurance clients have included defining and implementing strategy roadmaps, modeling frameworks, and data warehouse architectures. He can be reached at hari.raghumandala@gmail.com.

By Mike Hales, Joe Reifel, Gang Xu and Andrew Beebe of A.T. Kearney.

Introduction
Telematics—the integration of global positioning system technology and mobile communications—could dramatically alter the auto insurance industry. From personalized premiums based on individual driving data to automated emergency services and entertainment-based add-ons, telematics has the potential to upend the stable model that has dominated the industry for more than 50 years. The winners will be those early movers that capture the safest drivers, take advantage of pricing power and ease consumers’ concerns about privacy. This, the first in a series of three articles, looks at some of the challenges insurance companies have faced adopting telematics, where it has been adopted thus far, and where it might offer the most compelling propositions.

Reinventing Auto Insurance
The fundamental business model for the auto industry has changed little in decades. Usually, insurers determine auto premiums based on information collected at the point of sale — age, sex, annual usage, credit score and driving record — with little concrete data about driving habits and potential risks. After buying a policy, customers interact mainly through regular premium payments and standard claims procedures.

Telematics has shown the potential to turn this model on its head. By installing or embedding telecommunications devices into cars to transmit real-time driving data, driving habits, and road and weather conditions, insurers could measure and price premiums more accurately, provide customized services, improve safety and reduce claim costs.

In addition to unique offerings centered on insurance, telematics could provide new ways to serve customers. Instead of the traditionally sporadic customer touch points — mainly during accidents — insurers could pave the way for more frequent, more lucrative interactions, based on attractive add-on services such as real-time navigation, concierge and in-car entertainment. Breakthrough offerings and a new customer experience will offer new revenue streams and business models. In short, the way auto insurance is provided and customers are served will be fundamentally altered. (See illustration below.)

Of course, success in this arena is still waiting in the wings, and may not come so easily. The market has grown slower than originally expected, largely because of customer concerns about the privacy of data and the high up-front technology costs. Tackling these issues will be vital for future success in telematics. With an estimated 250,000 customers available for telematics-based offerings, and implementation costs dropping, auto insurers have no time to waste to make their move into this valuable market.

Catching up with the Future
Many insurers have already begun forays into the telematics arena. In the United States, Progressive’s MyRate program, based on how much a driver drives, has been implemented in 19 states. Other insurers, including AAA, State Farm, Hartford, GMAC, Erie Insurance, MetLife, Safeco and American Family, are actively conducting trials for market entry. Europe has moved more quickly, with key players such as Norwich Union, Allianz and AXA installing more units than their American counterparts. These early movers have accumulated enormous amounts of market intelligence and learned valuable lessons that are enabling them to develop economically viable business models.

Telematics has much to offer consumers, who place low premiums and good-driving reciprocity at the top of their wish lists, according to market research. Telematics offerings based on usage and driving behaviors could meet those desires, providing lower rates — perhaps 30 to 50 percent cheaper — for good drivers. On top of that, telematics could offer real-time and online feedback to drivers to improve their driving performance, provide safety, security and emergency assistance, and reduce accidents — all of which could lead to lower rates. A potential telematics offering could also span the full technology platform so that standard coverage could be combined with features never before associated with car insurance: navigation assistance, traffic avoidance, itinerary planning, vehicle diagnostics and mp3 players.

For insurers, winning in this market will be a major area of differentiation as they improve their risk management, heighten the safety of their drivers, reduce claim costs and draw in new customers. Specific markets could open up, as demonstrated in American Family’s teen program, which has demonstrated significant improvement on accidents and reduced claim costs.

In the end, insurance would become cheaper for good drivers and the companies that insure them (see illustration below). More accurate pricing models will enable insurers — especially first movers — to target good drivers with competitive lower rates, reducing the combined loss and maintaining the profit margin. The segmentation of customers will change, with increased knowledge about driver safety and usage. The game to win for insurers down the road is in acquiring new customers who are predisposed to safe driving, and creating a pricing advantage that can retain the good drivers.

A Private Matter
The barriers in this market can seem daunting, and the continued struggles in conquering them have kept the market from growing as rapidly as expected. While pricing has been an issue for both insurers and their customers, the most prominent concern according to market research has been user privacy, an issue which deserves special attention here. Many insurance customers say they are worried about installing a “black box” in their vehicles and being watched by “Big Brother,” but, we don’t believe this is an unsolvable problem.

First of all, people are willingly divulging their personal information in many different arenas and industries, despite their qualms. Social networking websites Facebook and LinkedIn have gained hundreds of millions of users, Internet banking and online credit card use has become prominent, and most cell phone users don’t worry about their phone holding location information. When it comes to telematics, though, we believe it is the “stigma” of insurance companies, and the fear that data about their driving behavior could be misused, that causes the concern. To overcome this hurdle, insurers must be as transparent as possible up front, offer the right amount of value-added services to customers, and carefully position the offerings with the right messages to win over consumers.

As we noted earlier, consumers want reciprocity — our market research clearly indicates that consumers will trade in some of their privacy if in return they get the right services at the right price. The number of subscribers for OnStar and other roadside service companies is growing; banks have drawn online users by offering incentives for going paperless on bills. Furthermore, technological advancements are improving location-based services, such as concierge and emergency roadside assistance, and consumers are gradually warming to the benefits of releasing certain parts of their private information.

But what about solving the primary concern, that insurers will capture and use data about their clients’ whereabouts? We believe there are ways to ease customers’ concerns. A feasible program that gets proper access to driver safety records could be developed without seeking access to too much data.

One potential solution is to embed a driver behavior analysis algorithm into the telematics device. The machine would process the customer’s driving data and provide only a normalized score (say, a 1-to-10 scale) that could serve as the basis for premium adjustments. The device would record where customers have driven, but the insurers would not have access to that detailed history. In this example, the device would process all driving-related data onboard and in real-time to calculate a driver score. Only this score would be sent back to insurance companies on a pre-defined schedule, while the detailed driver data including location info would reside in the unit and would be erased periodically. The score would be sufficient for determining the risk level and adjusting premiums accordingly.

Currently, a number of the device manufacturers are able to provide onboard data analysis functions to mitigate these privacy concerns. An alternate option would allow customers to delete the detailed history, or keep it and access it online.

In the future, it seems clear that insurers could take advantage of telematics without diving too deeply into personal data — they don’t have to know where customers drive exactly, as long as they can know about driver safety and potential risks.

While the privacy concerns present an obstacle, insurance companies can find ways to mitigate these concerns.

About the Authors: Mike Hales is a partner in the Chicago office and can be reached at mike.hales@atkearney.com; Joe Reifel is a partner in the Chicago office and can be reached at joe.reifel@atkearney.com; Gang Xu is a principal in the Southfield office and can be reached at gang.xu@atkearney.com; Andrew Beebe is a manager in the Chicago office and can be reached at andrew.beebe@atkearney.com.

By Brian Barnier, ValueBridge Advisors

Carrier CIOs are bracing for a triple threat in 2010 – market pressure on investment margins, competitive pressure on underwriting margins and tightening regulatory examinations with an eye toward broader change. Some CIOs must also digest acquisitions or support expansions. This is a rare combination of challenges. Whether they aim to thrive, or merely survive, the current atmosphere of change puts a premium on CIOs as risk managers. With failures splashed across the news, the question is how to make IT-related risk management easier and more effective.

Ninette Caruso, vice president of internal audit at Nationwide Insurance frames the business need this way: “We want to be aware of our current position and prepared to change quickly in response to situations such as new products, new regulations, market conditions or new technology. To perform, we must manage those risks effectively and efficiently."

CIOs can think of change in four buckets: 1) business driven change (e.g., acquisition, consolidation, product change, new regulations); 2) technology management change (e.g., consolidation, shared services); 3) technology change (e.g., cloud, mobile, virtualization); and 4) failure-driven change (e.g., actual, audit finding, testing finding or compliance gap).

These changes must be addressed to earn return – in underwriting, claims or investments. Yet, risk challenges the ability to earn return. CIOs can do little about investment or underwriting risk, but they can do something about strategic risk (through investing in IT infrastructure with the agility and cost structure to create strategic options) and a great deal about risk in program/project management and in operations/service delivery.

CIOs who recognize and try to manage risk from change face two more hurdles. First, within their own operations, they face the pain of coordinating across all the IT silos with different approaches to risk (e.g., continuity, project, change, availability, security, recoverability and energy). This wastes time and cost inside IT. Also, business line leaders want a view of risk that matters to “my business, not all of your silos.” Business line leaders often roll their eyes at the parade of IT people who arrive to detail risk (and ask for money) for each silo.

Second, regulators and boards are putting pressure on carrier executives to manage risks on an enterprise basis. With carriers more dependent than ever on technology, the CIO is in the hot seat. This forces the CIO to gather up all the silos of IT risk management and link these to the enterprise-wide risk management approach.

In stepping up to these challenges, CIOs have common cause with other leaders. Ms Caruso continues, “Our intent in audit planning is to partner with IT leaders to understand the risks that could affect our ability to achieve our mutual business objectives. These risks range from compliance with regulations and accurate financial reporting to having appropriate strategies and processes in place to achieve desired business outcomes.”

With all these moving parts, leaders are looking for a simpler way to get started and a path to mature. As a result, many have turned to various best practices that represent the collective experiences of experts across enterprises, industries and countries. Leveraging best practices saves time, cost and effort; provides educational material, training, a user community and updates; and makes it easier to work across supply chains. However, these practices vary.
 
Into this environment came the needs of ISACA’s 86,000 constituents in 160 countries, as well as other users of the COBIT and Val IT frameworks and best practices. They were looking for practical guidance that would bridge from generalized frameworks (COSO ERM, ARMS from the UK, 4360 standard from Australia and New Zealand or ISO 31000) to IT and then help integrate the various domain-specific IT risk practices. The result of survey research, practitioner requests, a five-country task force and 1,600 submitted comments is the new Risk IT framework and best practice.

“Risk IT saves time, cost and effort by providing a clear method to focus on IT-related business risks such as late project delivery, compliance, misalignment, obsolete IT architecture and IT service delivery problems,” comments Urs Fischer, VP of IT Governance and Risk Management at Swiss Life and chair of the team that created Risk IT. “It provides the guidance to help executives and management ask the key questions, make better risk-adjusted decisions and guide their enterprises so that risk is managed more effectively.”

Risk IT is based on ISACA’s popular COBIT framework. It covers Risk Governance, Risk Evaluation and Risk Response. Each includes process descriptions, maturity models for benchmarking, role responsibility charts and other guidance. Risk IT is a framework, not a standard, so it can be tailored to a particular organization, maturity, objectives, and business challenges. Based on ISACA’s history of keeping other frameworks fresh, users will likely see the same benefit from Risk IT. The Risk IT framework, like all ISACA principal documents, is a free download with registration at www.isaca.org/riskit.

Practitioners wanted Risk IT to focus on business objectives, cross silos and tie to broader risk management. Due to this design, CIOs can use Risk IT to both reduce the risk of business change to performance, and manage compliance and risk within the IT organization. This is a defense against the 2010 triple threat.

About the Author: Brian Barnier, CGEIT, is a principal at ValueBridge Advisors. He has worked in both business line and IT roles. He researches, teaches and writes on business-IT effectiveness. Brian served on the international task force that created Risk IT and chaired ISACA’s IT Governance, Risk and Compliance Conference. He contributed to the Wiley & Sons book, Risk Management in Finance. Contact him at brian@valuebridgeadvisors.com.

By Larry Danielson, Deloitte

Today’s business climate has made one thing very clear: either you are able and willing to invest for real change or be prepared to significantly fall behind. This somewhat binary choice, is what many insurers are now facing as the economy has exposed numerous fundamental flaws in how they utilize and deploy information technology. As insurers reduced their costs to align with new production levels, investments came under a new level of scrutiny. This reflection has revealed some very basic shortcomings that many realize require a new operating model to make change.

Leaders are now taking on topics such as: improving the way business and IT work together; providing employees a rewarding career path for the long-term; creating real partnerships with third parties; building technologies that offer end-to-end business solutions; and helping the business determine how to afford making change without taking inappropriate short cuts.

New constructs are needed to address how IT organizations operate under the current market conditions such as: cost reduction, culture, professional development, overcoming legacy environments, transparency and accountability. Solutions to these sometimes conflicting considerations are offered by new operating models for IT. Suggested below are the key elements of new operating models that we see being selectively implemented. It should be noted that we believe it takes a combination of these techniques to make effective change.

Information (Data) aligned structures
As many insurers begin to understand how to leverage their vast stores of data, they are now organizing functions around core information subject areas. They are forming groups that focus on the processing, structuring, cleansing and reporting in areas such as claims, customer, product or policy. These groups' responsibilities are subject area-specific and cross traditional business and application functions. Some organizations have created specialist roles such as a “Claims Data Leader.” These business/technology professionals have deep functional and data related technology competencies (e.g., claims, product, data warehousing, database administration). They also focus on solving legacy system issues by creating new and improved data constructs that provide the business with greater scalability, transparency and functionality.

A professional services (PS) model
This type of organization is designed to address what insurers need, and what IT professionals desire from a career perspective. The PS model brings functional and service area groups together as they execute projects. The functional team has members with underwriting, claims, and customer service skills, and the service area team includes architects, change managers, training specialists, programmers, and network specialists. Projects typically require a broad set of skills that are drawn from pools of talent where professionals are focused on building specific expertise and practicing their craft.

This model is unique because project costs can be specifically aligned with where business value is added. When a project is done, professionals are either adding value on a project or unassigned. New metrics can also be established for this structure to help address the proverbial “allocation” question.

IT professionals overwhelmingly prefer this model since their development objectives are addressed because they specialize in both functional and service area skills. As practice areas mature, tools, techniques and intellectual property (i.e. best practices business process models, reusable programming objects, alternative architectures) are developed and enhanced with each new project. Professional service models can also foster a proud culture for delivery and recognition of the value they add.

Innovation and R&D Centers
Insurers continue to require deep, specialized expertise, and many are working to develop. A growing number of organizations are creating innovation centers, similar to traditional research and development centers, but notably with a very practical focus. Insurers committing to these centers of expertise justify them by setting ROI targets that add business value. Some innovation centers are focused on specific business problems; the development of model processing centers is a popular example. Customer service automation is used to focus on helping customer in new ways, sometimes through strict automation and others through human interaction only. Insurers are also tackling legacy modernization through practical new applications developed and scaled to de-commission antiquated systems. In select cases, third party arrangements have been set up since the risk and reward is shared by consultants and software companies.

These new IT operating model capabilities are enabling insurers to take on “sacred cow” topics that have plagued the industry. As insurers adopt these capabilities, IT professionals are enjoying greater influence and are making a greater business impact. IT does matter and these operating models are making a difference.

About the Author: Larry Danielson, a principal in Deloitte's insurance practice, has over 25 years experience in leading large scale transformation at major insurers. His areas of expertise include end-to-end insurance processes for property and casualty, commercial, life and reinsurance carriers on issues ranging from business process design, organizational design, information technology strategic planning, mergers and acquisitions, strategic cost reduction, large-scale program management, productivity improvement, and outsourcing advisory. He can be reached at ldanielson@deloitte.com.

By Raj Ramesh, TopSigma Consulting

All companies desire to improve their customer experience. Customer experience is the manifestation of business processes in the organization. A good process provides a good customer experience, and a bad one, a bad experience. Business processes are in turn composed of building blocks - sometimes called ‘capabilities.‘ Therefore, to improve the customer experience, we need to improve some business processes, partly by improving the corresponding capabilities that are part of the process.

In a single product company, the capabilities are cleanly separated. For instance, when the customer buys the product, the process steps will include first contact, needs analysis, product sales (that includes underwriting), payment, and confirmation of the contractual agreement. The company has different capabilities come into play in a specific order to make this happen.

The capabilities, such as payment in this example, are ‘owned’ and managed by one team, while another such as underwriting may be managed by another team. Usually these teams are aligned to the organizational structure. For example, payment may be managed by the finance department and underwriting by the underwriting department. As long as each capability has ownership, and each process has ownership, it’s clear that the capability and process owners have to work together to create superb customer experience.

For multi-line companies organized along product lines, the challenge becomes more complicated. The capabilities are not owned by one organizational team, but may be spread across product lines. For example, the auto division may have its own payment capability, and the life division its own. To make matters worse, the “sales process” described above may also be different for the product lines. The result of process, capability and business silos, shows up as lousy customer experience.

To tackle the challenge, organizational leadership has to commit to enterprise integration that enables superb customers experience. How can this be accomplished? Each capability is assigned a business owner. This person is responsible for coordinating the work of their capability across product lines. Each process is also assigned a business owner, whose is responsible for coordinating process behavior and performance across product lines. The process and capability owners have to work with many organizationally structured teams across the enterprise to co-ordinate work.

However, the scope of such efforts is large and extends over many years. For example, what does “improving the sales process” really mean? How can the organization incrementally move towards integration of processes and capabilities? The starting point is in what I refer to as business scenarios. If we put ourselves in our customers shoes, we can walk through many end-to-end experiences that the customer has with the company. For example, the experience of a customer who is moving from the west coast to the east coast could involve a change of address, a policy update, and confirmation. This experience can be described in a business scenario. A business scenario is simply an actual manifestation of a process. There are many possible business scenarios for the same process, and even many more business scenarios across processes. Some business scenarios are just more ‘valuable’ than the others.

The next step would then be to identify those valuable business scenarios to improve or enhance. This in turn makes clear which business processes and which parts of those processes we need to improve. Once that is clear, the capabilities that need to be enhances becomes clear. Now, it becomes a question of execution, with the appropriate process owners and capability owners and the department heads working together to enable the right scenarios.

About the Author: Raj Ramesh, CEO of TopSigma Consulting, specializes in bridge organizational silos for insurance and financial services companies, aimed at establishing a better-connected enterprise and enhanced customer experience. He can be reached at raj@topsigma.com.

By Marie Carr, Partner, Diamond Management and Technology Consultants

In working with a number of large insurers we have identified five fundamental issues that are holding them back from reaching their multi-channel marketing goals. The CIO can play a critical role in overcoming those barriers and helping the company improve its growth and profitability.

Customer Ownership — Distribution, Marketing, Customer Service, and other areas all lay claim to owning the customer but the result is often internal disputes, gaps in service, and overlapping spending.

Successful multi-channel marketing investments depend on a clear, consistent understanding among all stakeholders about sales and service. That’s where information comes in. In many cases, the CIO is in the best position to collect information about customer behavior and to use the analytical tools necessary to analyze data across all channels. The IT department can be the honest broker who provides the information critical to decision-making.

Customer-Based Channel Alignment — An efficient multi-channel strategy requires that customers are at the center of operations and channels are aligned around specific customers based on target performance. That’s difficult when most insurers, because of the large scale of their operations, have ended up with discrete functional or product silos. The CIO can take the lead in facilitating cross-channel sales and service by opening up (or removing) silos of information and technology.

Marketing/Distribution Alignment — Few insurers have managed to fully integrate sales and marketing strategies with distribution channels. Deficient technical integration and disconnected data/information flows prevent companies from aligning marketing strategies, customer needs and preferences, and channel capabilities. The CIO is in the perfect position to oversee the integration of all information-dependent strategic initiatives and ensure that all channels are aligned with the overall multi-channel marketing strategy.

Web-Centricity — Rapid and rich information-sharing is the very thing that makes a multi-channel strategy work but some organizations are investing millions in their online presence with little thought about integrating these capabilities with the insurer’s top-performing agencies. Don’t let the web become another silo. The CIO should ensure that the company invests in technologies that will enable information sharing across channels.

Incentives — Leading a multi-channel marketing initiative is much easier when all stakeholders have strong reasons to get on board but too often the incentives that drive behavior often aren’t properly aligned. For example, if call center performance is measured on the volume of calls customer service reps handle per hour there’s no incentive to cross-sell or gather more analytical insights about customer preferences. Senior management must take the lead to set policies, metrics, and an organizational structure so that revenue attribution is incented across channels to enable complementary, multi-channel efforts.

Focus, Focus, Focus
CIOs that have been successful in integrating marketing channels exercise patience and focus on those few highly impactful areas that will deliver the best results.

First, begin by understanding the efficiency and effectiveness of each channel. This means putting in place agreed upon models and metrics regarding channel efficiency, channel effectiveness, channel profitability, and average customer lifetime value.

Second, focus on matching the right consumers to the right channel with the right products and services in the most efficient way possible. With new advances in information analytics insurers can now layer demographic information with geographic, behavioral, and attitudinal data. Combining data with persona and segment information makes it possible to precisely identify target segments for each channel and accurately measure the performance of the channel and the target segment.

And third, start synchronizing online and offline channels. This cannot be done overnight but the CIO should start working with their CMO counterpart to prioritize the points of synchronization. Begin by identifying the highest value customer segments and the critical points where they interact with the company. Integrate the channels at points where they create the biggest impact on customer conversion, revenue and retention.

Editor's Note: This article is Part II of a two-part series. Part I was Leading Through the Morass of Multi-Channel Marketing, published at Insurance & Technology's blog Jan. 12, 2010.

About the Author:Marie Carr is an insurance industry partner at Diamond Management & Technology Consultants with more than 20 years of experience advising senior marketing, distribution, and sales executives about how to create business strategies that leverage technology and information to create market differentiated experiences for their customers and channel partners.

By Marie Carr, Partner, Diamond Management and Technology Consultants

More customers are demanding an “anytime, anywhere” experience, and Brokers and agents are anxious about where they fit into a multi-channel world. In response to these market realities, the CEO is counting on a multi-channel strategy that will deliver greater returns on IT and marketing investments. This has created a morass of issues that every insurance company I know is trying to wade through. What do they need to know?

An integrated online and offline multi-channel environment should provide consumers with high-quality, personalized service through their channels of preference, at various states of decision-making and account management. For the carrier, this environment should deliver the ability to capture, record and analyze consumer interactions as they happen, and then trigger a highly targeted, personalized response that provides value to the customer and enables higher close ratios, greater retention, and profitable cross-selling.

Those goals provide a great opportunity for the CIO to add new value to the business. There are three important steps insurers should take to get its multi-channel marketing strategy on ground. The CIO, teaming with the CMO and other business leaders, can get the company off to a fast start.

One important step is maximizing the complementary performance of each channel so that the whole of marketing is greater than the sum of its parts. Synchronizing online and offline activities should increase sales, decrease policy lapses (increase retention), or both. Consider customers who shop for coverage online but drop out before completing a transaction. Insurers are exploring how to integrate this activity with their call centers or agents to increase sales. Immediate follow-up can enable insurance companies to address the “information gap” needed to close a sale.

Second, help the CMO understand each channel in terms of its current efficiency, effectiveness, profitability, and average customer lifetime value. Information from each channel should be collected and made available to other channels. The company should have in place models for measuring channel efficiency, channel effectiveness, channel profitability, and average customer LTV; metrics that have been agreed upon by the company’s executive team.

Third, use information to match the right consumers to the right channel with the right products and services in the most timely and efficient way possible. That means knowing more about consumers than their general demographic information or policy holder information. Insights about behavior, buying habits, and personal preferences can drive greater marketing precision and higher marketing ROI. With new advances in information analytics CMOs can now layer demographic information with geographic, behavioral, and attitudinal data. Combining this data with persona and segment information makes it possible to precisely identify target segments for each channel and accurately measure the performance of the channel and the target customer segment.

Because interactions can differ significantly depending on where consumers are in the customer lifecycle, companies should strive to map the lifecycle of each customer segment and then create an appropriate channel mix for each interaction point based upon their current and future value.
For example, during the information gathering process, make sure that mass media, direct, and online channels provide information that is easy to understand and customized based on customer preferences. During the selling process, quickly transition customers to the channel that is most likely to enable purchases. And during support process, provide information which facilitates better customer service and generates high quality leads for future product sales (whether they become customers or not).

In short, the CIO who can help lead the company out of the multi-channel morass will be a hero. And the company that succeeds will be using information in ways that are more valuable than the sum of their parts in attracting and retaining customers. In the next issue, we’ll outline how successful insurers are overcoming five key issues that threaten multi-channel marketing efforts.

Editor's Note: This article is Part I of a two-part series. Part II, "5 Issues Undermining Your Multi-Channel Marketing Efforts," will appear at Insurance & Technology's blog on Wed., Jan. 13, 2010.

About the Author:Marie Carr is an insurance industry partner at Diamond Management & Technology Consultants with more than 20 years of experience advising senior marketing, distribution, and sales executives about how to create business strategies that leverage technology and information to create market differentiated experiences for their customers and channel partners.

By Nicole Bruns, Product Marketing Analyst, Oracle Insurance

Insurance companies, emerging from the events of the past year, are focused like never before on the pursuit of profitable new business. In this quest, many are finding that they must rethink their IT strategies to support new business realities and requirements. One strategic area that insurers should re-examine is rating and underwriting. A consolidated approach to rating and underwriting supports the need for greater agility and accelerated speed-to-market, while driving down IT costs.

The average insurance enterprise runs an array of IT systems, including policy administration, Web quoting and comparative quoting systems. Each system may have its own rating engine, which results in multiple instances of rating logic and constrains overall operational efficiency and performance. Insurers face the difficulty of maintaining multiple systems, which require multiple levels of IT expertise. In addition, data and rate inaccuracies are inevitable in a multiple rating engine environment, which requires users to manually update information across each system.

Insurers can eliminate these technological constraints by implementing a single rating engine, one that is Web-based and rules-driven. By adopting a single rating engine that integrates with multiple enterprise systems, such as agent portals and policy administration systems, insurers can increase speed-to-market, enhance pricing accuracy and risk management, reduce IT costs and gain the flexibility required to meet changing business and industry needs.

Serving More Markets More Quickly
Getting rates into a rating engine historically has been a cumbersome process for insurers. Actuaries research and calculate the risk and pass this information onto the pricing team, which attaches a dollar figure. Business analysts then use this information to write out rating specifications and IT staff code and test the rates. This process grows increasingly complex with multiple rating engines, which require separate configuration and testing. By consolidating onto a single rating engine, and also empowering business users to create, manage and execute rates, insurers can greatly accelerate this process.

In a consolidated environment, business users only need to input rates one time after determining the price — eliminating IT team involvement, duplicate data entry and coding and testing requirements. The end result is faster speed-to-market for new products. If a rate changes, business users can quickly update the information and the system accurately reflects the new price across all distribution channels. Integrating a single rating engine with the insurer’s Web portal also enables agents to more easily access accurate rates, bolstering insurers’ efforts to expand into new distribution channels or markets.

Reducing Risk and Costs
Both a consolidated and an integrated approach to rating supports expanded risk analysis capabilities. By integrating all systems (whether an insurer’s agent portal, customer portal or policy administration system) to a single rating engine, each system receives the same results every time. A single rating engine ensures accurate rates across every channel by supporting a single source of rating truth.

Additionally, actuaries, product managers, business analysts and other staff can also use rates in the consolidated system to run “what-if” scenarios on an entire book of business to see how rate changes may affect underwriting profitability. Combined with scenario testing, insurers can leverage infinite rating tiers to profitably underwrite business that they may have previously turned away. A Pennsylvania-based regional property and casualty insurer, for example, had struggled to execute rates from both its agent Web portal rating engine and a rating engine embedded in its legacy policy administration system. After consolidating onto a single rating engine, the carrier was able to write business previously considered too risky by calculating a much broader range of factors and tiers.

Adopting a consolidated rating approach will increase rating accuracy for insurers and reduce IT costs. For example, if an insurer has three rating engines for multiple channels or lines of business, it could be processing Web quotes and final policy quotes from separate engines. Not only does this lend itself to accuracy issues, but running multiple engines requires redundant hardware. By consolidating onto a single rating engine, the insurer can reduce data redundancy, improve accuracy and minimize hardware requirements, as well as the associated IT maintenance and management costs.

Insurers also can more effectively respond to future market and regulatory changes by migrating to a single rating engine. Consolidated rating provides insurers with enterprise-wide insight to assess which lines of business are most profitable, as well as how to improve the profitability of lagging lines of business. Implementing a single rating engine also enables insurers to quickly adjust to comply with new regulatory requirements as they come into effect.

Consolidating onto a single rating engine enables the agility and efficiency that insurers require to effectively compete in the modern insurance market. With a streamlined rating approach, insurers can rapidly adapt to market changes and capitalize on new business opportunities, while reducing IT costs to optimize profits.

About the Author: Nicole Bruns is a product marketing analyst with Oracle Insurance, where she is responsible for rating and underwriting applications, business intelligence, distribution management and other offerings for the Property & Casualty market. Contact: nicole.bruns@oracle.com.

By Phil Dayalu, Kaplan Compliance Solutions

The 4th quarter is a time when most companies are budgeting for new projects, including software investments. Whether large or small, a systems integration comes with risks if it is not approached with the right knowledge and planning.

Before embarking on a systems integration project, here are four things you should know:

1. Know your business, the technology’s goal and your role in the process. Systems integrations must deliver measurable business value; “because it’s newer” is never a justifiable reason to move forward with a project. The delivery of value is possible only when the business project champion is involved from beginning to end.

2. Know when “good enough” is, well, good enough. Perfection does not always equal success if an entire project is put at risk to eliminate a non-critical issue. Instead, document the issue and address it at the appropriate time.

3. Know when to communicate and when to ask for help. Don’t operate in a black hole by forcing the project champion and your team members to ask for information. On critical projects, it is not possible to “over communicate.” Raise critical issues/roadblocks as soon as you know about them. Waiting to communicate that a critical issue exists until you’ve “tried one more thing” is a good way to lose credibility.

4. Know when to share both the pain and the glory. Instead of covering up mistakes, communicate them to your team and enlist the team’s help in coming up with a solution. Remember that leading a successful systems integration is not a science; it is an art form. Develop a team of “artists” and ask them early and often for guidance. Team members are valuable resources and need to be treated as such.

About the author: Phil Dayalu is the Vice President of IT for Kaplan Compliance Solutions, a provider of services and technology solutions for the insurance and securities industries to help manage the producer/representative onboarding process and career cycle. Phil can be reached at KaplanComplianceSolutions@Kaplan.com.

By Jerry Driscoll, HP Exstream

Insurance companies are inherently dependent on document-intensive processes. From quotes and policies to billing statements and claims, it is easy to see why it is so crucial for insurers to have the most reliable and efficient document automation solutions to streamline these processes. The recent announcements regarding some of the older policy production systems being discontinued has flooded the market with conflicting messages concerning next steps and which document solution is best. Whether your current policy production solution is outdated, inefficient or sun-setting, there are a number of factors to consider before replacing it.

Reasons to Change

Before you decide to change to a new document automation solution, it is important to evaluate the drivers within your organization for making such a change. Key drivers include:

• Risks to mission-critical functions. Policy issuance is a fundamental function for insurance carriers and any disruption would be considered, by any CIO, to be a catastrophe. This risk has greatly increased in the last 12 months with the announcement that many popular solutions will no longer be supported or enhanced in the near future. Without someone to call when the system goes down, organizations are exposed to significant operational and financial risk.

• Pressure to reduce operational costs. Insurance companies incur significant costs associated with customer communications and policy production, including document development time. By continuing to utilize a legacy system, tasks ranging from integrating, extracting and normalizing data from back-end systems to implementing new lines of business are time-intensive and expensive. Adopting a modern enterprise document automation solution allows you to streamline processes and significantly reduce document management and development time so you can focus on capturing more business rather than operations that support the business.

• Need to simplify the IT environment. Using one system to produce policies, another to generate claims correspondence and yet another to deliver annual statements is an inefficient use of IT and financial resources, and prevents consistent communications to members. When evaluating new document automation solutions, find one that supports policy production as well as member communication needs from a single platform, scales for future business requirements, and supports collaboration on document creation.

• Market pressures to become more competitive. By upgrading legacy policy production and member correspondence systems, insurers can eliminate bottlenecks, reducing costs and enhancing the member experience. An effective enterprise document automation solution allows insurers to create policies and other member communications that are relevant and personalized to their needs, consistent in look and feel, and easier to understand, allowing insurers to more effectively combat competitive pressures.

Finding the Right Solution

Now that we have established the drivers which necessitate upgrading your policy production systems, knowing what to look for in a new solution is vital.

1) A reputable supplier. North American insurers need to look beyond the software itself and select a technology partner who is reliable and committed to continued innovation. Consider factors such as the size of the vendor, how long they have been in business and their presence worldwide.

2) An enterprise platform, not just a point solution. Look for an enterprise platform that supports design, creation, delivery, and management of all member communications, regardless of type (e.g., billing notices, claims, quotes, proposals, etc.), complexity, or delivery channel.

3) Compatibility with your environment. A solution that fits well into your existing IT environment is a must for any solution that you consider. It should allow you to utilize your existing hardware, printers and data files, and should not force you to change these. Often, companies can get bogged down with simply converting their data to make it ready for the new system. Insurers should look for a solution that can easily access and leverage existing content in its native format without having to transform or manipulate it.

A Strategy for Conversion

Much like a new homebuyer can get lost in the excitement of the new features and amenities of their future home, overlooking the necessary steps they must take in order to actually make the move, it is important for insurers replacing legacy policy production systems to consider vendors with a proven conversion strategy in addition to attractive software features. Insurers should also look to peers who have already made a conversion to better understand what they can expect. Lastly, insurance companies should look for a document automation solution with features that promote ease-of-use (backed by industry analysts), minimal IT support, higher productivity, and the ability to create complex documents.

It can seem overwhelming to consider migrating to a new document automation solution; however, selecting the vendor with the right solution and notable experience in conversion can alleviate this anxiety. After you have made the move to your new document automation platform, the ease of use, increased productivity and agility it provides will ensure you are well prepared for the future.

About the Author:Jerry Driscoll is Sales Director, Financial Services and Insurance Division, HP Exstream. He is responsible for directing HP Exstream’s business development for all North American financial services and insurance markets.

By Nina Babirad, iGATE

A key challenge for most Life insurers is balancing the cost of managing inforce business and funding new product development and strategic initiatives to gain new customers. As a significant portion of inforce business is closed block, which presents a common set of cost and service challenges for most carriers - legacy products are difficult and expensive to convert. Conversion costs and effort exceed potential benefits, while budget, time and talent constraints result in neglected legacy systems, with limited enhancements being introduced to support Day 2 functionality. Closed blocks are not strategic, but maintaining service standards is essential to retaining customers and safeguarding an insurer’s reputation. Operations and IT costs continue to grow despite a shrinking block of business, resulting in per policy costs increasing over time.

Multiple ways of performing the same business process on different systems translates into high operations costs. New products and features are usually the priority, so enhancements and changes to legacy systems typically focus on new business - Day 2 modifications are often deferred to a later “release.” But, budget and time constraints often mean that these enhancements are shelved year after year, and workarounds, spreadsheets and manual processing for older products are implemented to compensate for missing system functionality.

As investments in older systems decrease, reliance on manual processes to support inforce policies grows. Productivity decreases, data quality deteriorates per policy costs and reliance on people and paper increases, IT legacy skills become scarcer, and experts become critical for retaining systems and operations knowledge.

Taking out costs associated with maintaining closed blocks and legacy systems is a key opportunity to find funding for new initiatives and products. This is where most companies struggle — reducing closed block costs is desired, but the achievement of any significant reductions is elusive, with limited options available:

• Consolidating to a smaller number of systems to reduce IT costs - Converting Life policies is not straightforward -- most insurers eventually conclude that a business case can’t be made for a block of business that is not strategic and is running off.

• Divert funds for new products and services by shrinking spend on enhancements of legacy systems.- Most IT leaders are pressured to reduce spend on legacy systems, but this inevitably impacts operations costs as more workarounds and manual processes are needed to make up for missing system functionality.

• Reduce Operations costs through Process Reengineering – While process improvement initiatives such as Lean Six Sigma can yield some savings, real cost reductions come from optimizing processes through automation. If IT budgets are limited, significant savings cannot be achieved.

• Reduce Operations Spend through headcount reduction – This can work if investments in technology are made to replace people. But cutting headcount can result in deteriorating customer service and a stressed workforce.

• Sell the books of business: While this strategy eliminates the issues related to managing closed blocks, many companies are hesitant to do this because they give up the surplus generated by these blocks of business, and can lose a significant part of their customer base for cross-selling or conversion.

• “Lift and Shift” Offshore BPO – This reduces the wage cost components of closed block administration, but most life companies find out that many of their processes can’t move offshore because they rely on paper and “tribal” knowledge.

The ideal solution for reducing closed block costs combines BPO along with a technology platform built specifically for closed block processing - automating manual procedures, enabling support of hundreds of products and product variances, conversion utilities that allow for migration of “dirty” data that can be fixed as policies are encountered for servicing, and moving back office processes to a low cost location, resulting in a quick ROI. Life companies need a solution that allows them to reduce non-strategic operations and IT costs, and closed blocks are the ideal source of finding enough reductions to make a real difference for funding new strategic initiatives, and improving top and bottom line performance.

About the Author: Nina Babirad is associate vice president an head of the insurance practice at Fremont, Calif.-based iGATE. She can be reached at nina.babirad@igate.com or (905) 290-3007.

Given current market pressures, insurers are looking to maximize output (faster turnaround, better service, fewer errors) for equal or lower costs. Typically, the claims operation harbors the largest percentage of the workforce within an insurance organization. Yet as Michael Costonis, global claims practice leader for Accenture, recently commented during an A.M. Best webcast, “It is very difficult to get consistency of execution within the claims operation.”

Many insurers are turning to BPM and workflow systems to streamline and automate paper processing and document routing. However, these systems are limited in the actionable intelligence they provide managers regarding workforce, capacity and resource planning. With BPM and workflow systems, managers know how much work needs to be completed (the demand) but without the employee information (the supply), a lot of questions remain unanswered. For example:

• How many people are needed to complete the work “in queue” to meet deadlines/service level agreements?

• How much workload will there be tomorrow, next week, next month, next year?

• How many people are needed—and with skill proficiencies in which areas—to meet current and future demand?

• How well are staff processing the work; are they within expected standards? Who are the top performers? Who needs additional training?

• How effectively can staff be moved around or work to meet the day’s deadlines?

• How much non-production/queue work directly impacts staff availability and productivity (e.g., project work, training, meetings, etc.)?

Some claims organizations are realizing that workforce optimization solutions, traditionally deployed in the contact center, can address the human quotient (the supply side) of the processing equation. Workforce optimization can work in tandem with a claims operations’ BPM and workflow systems to address the effectiveness and productivity of the people handling the work. By matching employee skills and availability with forecasted volumes of work, managers can more accurately schedule employees to meet demand and increase utilization. As Dorothy Muir, senior vice president of claims at Maiden Re (formerly GMAC Re), explained during the A.M.Best webcast cited above: “Volume is critical to proper management of claims. If an adjuster is overwhelmed with the number of claims, then customer care will take the back end.”

The key application enhancements that workforce optimization offer to a BPM/Workflow environment is (a) forecasting (b) scheduling optimization and (c) performance management reporting.

With forecasting functionality, claims areas can predict demand on an hourly, daily, weekly or monthly basis with great accuracy. The scheduling optimization then allows the automatic matching of resources, skills and work preferences of employees to meet forecasted demand. This forecasting and planning capability within workforce optimization is augmented with real-time data input to track actual results occurring throughout the day, thus allowing managers to make on-the-fly decisions to adjust resources to meet volumes, deadlines and service levels more effectively. These capabilities are helping claims organizations maximize resource utilization against volumes and deadlines, and increase throughput.

From a performance management point of view, BPM and workflow systems are augmented through the ability to measure the performance of employees against processing and quality standards, and report on comparative results through the use of customizable scorecards and dashboards Monitoring the quality of processing and adherence to standards can improve real-time visibility into the activities of individuals and teams, and support more timely feedback and correction. Most BPM and workflow systems provide the information to support performance management, but lack the interactive and drill down reporting needed to empower managers on the front lines.

One Fortune 500 life insurer deployed workforce optimization technology in its life services division. The result: the company was able to reduce turnaround time by 37 percent—moving from 9 days to 6 days, with bill processing approaching a 4-day turnaround. As such, the life insurer was able to reap substantial financial benefit in its contact center, decreasing status inquiries by an estimated 30,000 calls. The division also improved employee utilization, resulting in a 10 percent improvement in productivity.

Gaining control and consistency in claims operations requires more active, real-time management of the claims workforce. Workforce optimization, along with other process-centric solutions, can give managers visibility into not only what is being processed, by whom and when, but how the work is being processed. Claims operations can then more effectively manage workflow, predict volumes and match resources to maximize utilization, as well as monitor employee performance to improve consistency, accuracy and throughput—supporting operational excellence, the customer experience and the bottom line.

About the Author:Chris Zaske is vice president of the Workforce Optimization Practice in the Enterprise Solutions Group within Verint Witness Actionable Solutions. An expert in strategic planning and business management processes, he has worked with businesses of all types around the world, helping organizations consolidate operational structures in both the front office and back office. Contact the author at chris.zaske@verint.com.