As if to validate last week's Editor's Note, major horizontal vendors have demonstrated its introductory hypothesis, perhaps best summarized by the words of the notorious Willy Sutton. When asked why he robbed banks, Sutton famously replied, “That’s where the money is.”

This week two major technology players made announcements about their intentions to beef up their insurance vertical presence with the acquisition of important insurance industry technology vendors. Yesterday HP announced it would acquire EDS, and Oracle said it is buying up-and-coming, new-technology policy management software vendor AdminServer.

Taken together with Versata’s announcement last week that it would acquire Clear Technology, this latest round of M&A is probably the most significant spate of insurance technology vendor consolidation since 2006, which featured deals such as IBM/FileNet and ChoicePoint’s acquisition of ePolicy and Insuratec.

These deals demonstrate recognition on the part of large horizontal players that they believe there is still great potential for sales in the insurance industry, says Craig Weber, Celent senior vice president and insurance practice leader. “For big players such as Oracle and HP to make a commitment in the insurance industry shows that they are willing to verticalize their offering and that they believe that there’s a long-term play in the industry.”

In that respect, while their methods may differ from Mr. Sutton’s, they share his insight on the opportunities presented by the financial services industry, and in this case, the insurance vertical in particular.

When people do something wrong, their inclination is to conceal it. That being the case, reading the following press release from an outfit called Consumer Watchdog raised a red flag, even as it piqued my curiosity:

"Consumer Advocates Call for Refunds, Rate Reductions, for Allstate Policyholders After Company Releases Internal Documents Revealing It Intentionally Underpaid Customers.”

Leaving aside the headline’s atrocious length, its message jars: it finds fault with an entity that seems to have done something commendable by giving the public a thorough look into its inner workings.

In the lead paragraph the press release affirms that the carrier made 150,000 pages of documentation available over its Web site. “Was Allstate forced to release the documents?” I asked myself on reading this, but the text acknowledges (if reluctantly) that the carrier’s revelations were voluntary.

The press release’s text includes extravagant judgments to the effect that, for example, the documents “expose a business strategy of systematically underpaying claims,” etc., and that those documents “reveal the company’s ‘Us versus Them’ attitude toward its customers,’” but no specifics are cited. It goes on in high dudgeon to allege that "Allstate's 'good hands' are stealing from customers' pocketbooks."

A visit to Allstate’s site naturally yields a diametrically opposite take on the event, with a press release headed “Allstate Acts to Dispel Inaccurate Portrayal of Claim Practices.”

While the Allstate release begs many questions, it nevertheless makes a plausible case in sober language, in contrast to the exaggerated, propagandistic style of the Consumer Watchdog release.

It may be that the carrier fought court battles to keep the documents secret, as Consumer Watchdog claims. Or not. Without further investigation, one can only speculate, guided by the relative prima facie credibility of the two press releases. What is not a matter of speculation is that Allstate did release this mass of evidence for public perusal.

Whatever the ultimate rights and wrongs of the case, Allstate has not only made use of the preferred communication channel of anyone likely to care about these matters but has done so while releasing a staggering amount of internal documentation. That act will make a positive impression on those who will dig no further as it makes the material available for those who will dig and sets a precedent for greater corporate transparency at a time the public is clamoring for it.

Like a mountain peak that seems to recede as you approach it, the prospect of the establishment of an optional federal charter (OFC) to replace a strictly state-based regulatory system for insurance remains in some indefinite future, despite our continued conversation about it. This is not to say that the OFC will never get here, only that we're still some way off from predicting its arrival.

That remains the case despite the proposal of an OFC in Treasury Secretary Henry Paulson's preliminary blueprint for a streamlined financial services regulatory system headed by the Federal Reserve. However, Paulson's recommendations have certainly brought renewed intensity to the OFC debate, and they have probably made OFC more likely to happen by popularizing the notion of unified federal oversight for financial services—and that would probably have been the case if no specific recommendation for OFC had been made.

Reactions to Paulson's recommendation for an OFC were predictable: the American Council of Life Insurers (ACLI) applauded what it characterized as a more efficient and modern framework; the Property Casualty Insurer Association of America (PCI) agreed about a need to streamline and modernize, but not at the expense of a state-based system that accounts for real differences from state to state and region to region. Both associations make valid points, so one wonders whether they might both be accommodated.

That is what the "optional" part of OFC pretends to do, but in a market where OFC prevails, larger companies will have an advantage at the expense of small regional players.

As the federal government steamroller gears up, organizations such as PCI and the Independent Insurance Agents & Brokers of America will need to win converts to their argument that state regulation has and will continue to serve consumers interests better, not just their own.

One hopes that no insurers are without the password and encryption safeguards to protect personal health information (PHI). The government's HIPAA security guidance requires that PHI be protected, but the government has failed its own standard once again, this time by the actions or negligence of an employee of the National Institutes of Health.

The breach, involving medical information of 2,500 individuals, was caused when a laptop was lifted from the trunk of an NIH employee named Andrew Arai, who was dropping his daughter off at a swim meet. The trunk was locked, but the sensitive information contained in the laptop was not. As the Washington Post reports, "An initial effort by information technology personnel failed to encrypt the laptop before it was stolen and Arai neglected to follow up, according to NHLBI spokeswoman Susan Dambrauskas."

In this case the sheer number of records lost didn't rival the notorious loss of confidential information associated with the 2006 loss of a Department of Veterans Affairs laptop (or the much more recent security breach associated with Hannaford Bros. supermarket chain) but there is special embarrassment in the breach occurring on the watch of an organization that falls within the Department of Health and Human Services, which promulgated and polices HIPAA rules.

Apart from that dubious distinction, the NIH is much like other government operations, according to a GAO inquiry:

The incident is the latest in a number of failures by government employees to properly secure personal information. This month, the Government Accountability Office found that at least 19 of 24 agencies reviewed had experienced at least one breach that could expose people's personal information to identity theft.

The importance of corporate compliance and transparency, in not only the spirit and the letter of the law, but also in terms of technical visibility into company activities, was reinforced by yesterday’s announcement by the Pennsylvania Insurance Commissioner’s office that it was levying record fines against AIG.

Under the terms of a settlement reached between the carrier and the commissioner, AIG will pay $9.1 million to the state in penalties and investigative costs for financial misreporting, according to the Pennsylvania Insurance Commissioner’s office. The settlement also requires AIG to provide detailed annual reports regarding the company’s reinsurance arrangements.

The Commissioner’s office’s press release has the tone of having covered all the bases, but one imagines that there must be an infinity of possible infractions that the state could wish to anticipate and police. The communiqué also indulges in a flourish of righteousness:

In February, a former AIG executive and four former Gen Re executives were found guilty in federal court for their part in a transaction related to the financial misreporting that is the subject of the Insurance Department's actions.

Proportionate fines for misreporting a transaction is well and good; jail time is another thing. As I related last week, former AIG exec Christian Milton and three of the four Gen Re execs face possible sentences of 210 years each. Perhaps, when all is said and done the Gen Re execs and AIG’s Christian Milton will remain at liberty. That’s as it should be if, as a correspondent of mine has said, these individuals could have had no notion that what they were doing was a crime.

Sophocles himself could not have presented us with a better ending for the career of Eliot Spitzer, an arrogant, vindictive man whose hubris inexorably brought his downfall.

His critics have long thought him worse than many of the victims of his ruthless tactics but few can have imagined he would end as he did, exposed as a participant in a prostitution ring. Yesterday's press conference provided the morbidly fascinating spectacle of a great pretender unmasked, a man held up as a shining exemplar exposed as just another staggeringly un-self-aware careerist having risen to his level of incompetence.

It's not surprising that Spitzer should find himself schooled by seasoned New York politicians such as New York State senate majority leader Joseph Bruno, who turned the tables when Spitzer tried to sully his reputation; or assembly speaker Sheldon Silver, who outfoxed Spitzer on the appointment of comptroller. What is surprising is that Spitzer should fall victim to the kinds of investigative techniques that he has used with such relish against others.

Caught by review of bank transactions and the interception of communications, Spitzer could said to be a victim of "The Spitzer Effect" himself. However, while the guilt of many of his victims was debatable, Spitzer's was not, whatever one thinks of his root offense. Spitzer was never one to let the privacy of his marks get in his way, so there is poetic justice in the way he was nabbed.

His career in tatters, Spitzer's brassy persona remained intact at the March 10 press conference; his "short, arrogant statement," as the New York Times put it, was replete with self-reference: "I have disappointed and failed to live up to the standards I expected of myself," he said. But the mute eloquence of his wife Silda Wall Spitzer's sorrowful expression served as a reminder of the misfortune such narcissists can cause others.

The disappointment of the New York Times' editorial writers and other erstwhile Spitzer supporters was palpable; how much greater must the sense of betrayal felt by the woman who joined her life with this man and bore his three daughters. I feel truly sorry for Mrs. Spitzer, who bore yesterday's shame with such dignity. But I feel sorrier for other victims.

For example, the four Gen Re executives and former AIG VP Chris Milton, whose prosecution was an outgrowth of Spitzer's vendetta against Hank Greenberg. Four out of five of these executives face fines of up to $46 million and prison sentences of up to 210 years at their sentencing on May 15. I don't pretend to understand finite reinsurance transactions well (and doubt the jury did) and I'm willing to be persuaded that these executives transgressed the law. However, I find the severity of the penalties they face shocking.

By all means, let us insist that the powerful actors of the financial world be held to high standards; let investors be protected and people who ruin others financially be severely punished. But let these objectives be pursued by authorities who are scrupulous in their use of power, and who are dedicated to the presumption of innocence and to proportionate justice.

Spitzer failed miserably by that standard; and while he should be treated better than he has treated others because that is what the law demands, he is due very little leniency when it comes to the discretion that the law affords. When it comes to public opinion and the press, which he used so artfully to discredit others, let him have a dose of his own medicine.

It's ironic that we rely on the global Internet for the transmission of vast amounts of accurate real-time information and yet we can't get reliable information about the infrastructure that enables it. We still don't know how it happened, but it seems at this point one may safely say that two undersea cables were cut off the coast of Egypt in the Mediterranean, and one off the Emirates in the Persian Gulf. A fourth cable appears not to have been cut but taken offline owing to damage to its power supply.

That even two cables in different geographies should be cut in so short a period of time is suspicious, especially as they occurred on either side of a well-defined block of territory, namely the Arabian Peninsula. What made the incident most interesting to the financial services industry, of course, was its effect on connections to Indian outsourcing partners.

Reliable information is in short supply in this regard as well, but there's enough information to draw some conclusions. Some companies, such as Satyam, have owned up to minor latency problems, while other claim say they experienced no problems whatsoever. At least one outsourcer (who shall remain nameless) stalled when I asked more specific questions. However, some people are talking in India.

The ISP Association of India reported a 50 to 60 percent cut of bandwidth to Europe, owing to the fact that the affected cables are the chief conduits for Europe-bound Internet traffic from India. That country's The Economic Times reports that:

…firms like Delhi-based Jindal Intellicom saw almost 100% of its internet traffic hit on Wednesday. The company, though, reduced it later to 50% through backups. "There is still a slight delay in traffic but the impact is only about 10%," said a company executive. "Between 20-25% of the 1,300 companies that make up India's $11-billion outsourcing industry was cut off. For small firms, the revenue loss will pinch," according to an industry insider.

Perhaps even more revealing than the article are comments on the excerpt published at the ISPAI's site, including this one:

Oops.... probably this is a kind of news that would never get published as it never happens that way! I guess, that is the fundamental difference between USA and India. Despite a fact that we control over 65% of the outsourced market of USA, we are never geared up for eventualities that lead to break down of Internet in India. Either a small earth quake in Indonesia or a fiber cut in Mediterranean puts 50% of Indian Internet business out of Network; then comes a situation where we go ga ga ga all over the World and the issue dies on its own.

In the end the effect of the outage on outsourcing customers was fairly mild, according to David Appasamy, a spokesman for Sify Technologies, a Chennai-based network and e-commerce services provider. "The cable outage caused shortage of bandwidth, increasing latency t o Europe and the U.S. East Coast for many carriers," he says. "But for those with circuit restoration capabilities and enough spare capacity there was minimal impact and latency."

However, the incident was a "wake-up call" in the opinion of a senior technology executive at a major Northeastern bank who wishes to remain anonymous. His company was not hit hard, by his account, but it was hit: "Some of the companies servicing us were somewhat impacted," he acknowledges. "Nothing mission-critical that would impact our end clients but there has been some sluggishness."

The source did not identify his India-based partners but did say that his company has diversified its outsourcing footprint and works, for example, with Dextrys (formerly DarwinSuzsoft) in China. He said that the cable failure provided "a good lesson for all of us to draw when we look for global locations."

However, the more urgent lessons, according to the source were focused on flow rather than locations of operations. "Certainly we have to think about issues having to do with the transport medium itself, but also in terms of how we route our traffic, not just in anticipation of scenarios like this, but also in the event of excess or overload of a given network," he says.

The protean nature of the Internet may distract sufficient attention from the "transport medium," since there is no single road that a given e-mail need take, let alone the total communications associated with something like a BPO relationship. And yet, the virtual reality is sustained by real-world material. In the end, in the view of Matt Josefowicz principal of Novarica's insurance practice, the recent failure of Internet-bearing fiber optic cables, "underscores some of risks of offshore outsourcing and the relative fragility of the global information infrastructure. In a virtual info economy we tend to forget that these signals travel over a physical infrastructure vulnerable to accidents and volatile political situations."

More big news in the document/content management space as HP announced that it will acquire Exstream Software. The last significant example of the ongoing consolidation in this sector came at the turn of the year with EMC's agreement to acquire Document Sciences.

Matt Josefowicz of Novarica suggests that the acquisition will build meaningfully on HP's very significant print output business. Exstream has carved out a very strong position in high-volume, complex document composition in insurance as well as other areas, and this move clearly strengthens HP's overall position in document creation and output," Matt says. "This is part of HP's general strategy of moving up the value chain in business technology into applications and value-added areas like business intelligence."

HP is taking a different approach than others in the content management field, according to HP's David Murphy, senior vice president, Web services and software business, of the vendor's Imaging and Printing Group. Murphy sees many competitors adopting a strategy of attempting to distribute enterprise content management from a centralized location. HP's strategy, he says, "is not trying to shove it in one place but by focusing on the end product." The only competitors thinking in remotely the same way are client-oriented content players, such as Microsoft and Adobe, who have more of a relationship with the customer at the point of consumption.

In terms of the value of its new acquisition in this regard, Murphy says, "We felt that Exstream brought us a set of connectors and a hardened environment to be able to pull information from ERP and CRM systems and legacy environments, leaving core data where it belongs, and taking advantage of it in some new way."

Research conducted by I&T, Bank Systems & Technology and Wall Street & Technology toward the end of 2007 suggested that most insurers will enjoy spending increases in 2008, so it may be fortunate that some new advisory firms have emerged over the holiday season to help guide them in their choices. Matt Josefowicz’s move from Celent to Novantas has resulted in the launch of new research and advisory services subsidiary Novarica; and former TowerGroup analyst Deborah Smallwood has left her carrier executive post at ICW and teamed up with IBM alumna Cindy Maike to launch Smallwood Maike & Associates. These firms’ advisory offerings differ, but they have in common a hybrid approach to advice, mixing elements of their founders’ analyst background with other elements.

Novarica departs from what Josefowicz refers to as the dominant "Gartneresque" advisory model based on research subscription for one based on an annual retainer that gives clients access to the analyst or consultant. "We see the opportunity to provide information, insights and perspective on technology strategy issues for CIOs with a bit more flexibility in terms of how those insights are delivered," he says.

Depending on the needs of the client, published research may be the best option for conveying information, Josefowicz elaborates. In other cases, however, "it's more effective to trade e-mails or have a conversation with the person who has done the research and has the insight," he adds. "If one’s business model is based exclusively on published research, it's hard to capture the value of those interactions—which is where a great deal of the value is created within an advisory relationship."

Josefowicz sees the hybrid character of the Novarica approach in its combination of the economics of a subscription relationship with the personalization of traditional consulting.

Smallwood Maike & Associates seeks to combine the research expertise of analysts within a more traditional consulting format, and unlike Novarica, will place heavy emphasis on the business rather than the technology side, according to Deb Smallwood.

In Smallwood’s vision, the insurance industry is poised for transformative change, but recent advances in technology have ironically reinforced the business/IT divide in important ways. "We believe that services-oriented architecture [SOA] is a way to help facilitate change, but SOA must not be understood as an IT breakthrough," she argues. "It’s not just about technology, it's about business solutions. If executives can think about their business in terms of services, then they can reach the agility that everyone is talking about."

Smallwood plans to leverage best practices from the traditional consulting world and combine them with the benefits of the analyst’s research acumen. "We want to build the best of those worlds into an advisory firm that works with businesses to leverage mature technology and get them to think differently about their business operations," she says.

The importance of business and IT alignment within an insurance organization was a common theme discussed by both our Tech Savvy CEOs (June 2007) and Elite 8 honorees (November 2007).

And apparently, the call of those leading CEOs and CIOs has been heard throughout the insurance vertical. But while most business and IT executives agree upon the value of IT as it relates to the strategic success of a business, a relative few are able to convert those mutual feelings into positive results.

According to the Diamond Digital IQ Study, a recently report by Diamond Management & Technology Consultants, 85 percent of business and technology leaders within the insurance industry agreed upon the value of IT in strategic success. However, nearly 36 percent of those business leaders were dissatisfied with the IT strategic planning process, while only 15 percent of IT leaders shared that sentiment.

"There are some disconnects between statement and action," says Paul Blase, co-managing partner of Diamond's insurance practice.

Blase points out that a low percentage of insurance business leaders are satisfied with IT department results, in terms on-time, on-budget project delivery. On the flip side, 70 percent of business leaders believed that post-merger and acquisition (M&A) business integration processes were effective, as opposed to almost 35 percent of IT leaders.

Further, despite most acknowledging the strategic importance of IT, few business leaders have offered IT a seat at the table. Case in point: only 36 percent of the Diamond survey respondents "totally agreed" that the CIO was involved in the business strategy development process.

Those disconnects between theory and practice, Blase says, affect how insurers view IT-related ROI and performance. As a result, IT budgets can be thrown out of whack.

"If IT and the business aren't working together on the areas where IT can drive down maintenance costs, the budget becomes bloated in the wrong area and there is less money to free up for IT strategic investment," Blase says.

While the above illustrates that the insurance vertical has a long way to go, the industry is not alone. In many ways, the discrepancy between plan and practice within insurance is in line with the overall findings of the Diamond study, which included results from 456 C-level business and technology executives across a wide array of industries.

In fact, insurers stack up quite well against the whole. From both an operational and strategic standpoint, the study has found that insurers have demonstrated a strong commitment to IT, outpacing the consumer packaged goods and retail; manufacturing and distribution; and utility industries in these regards.

Further, Blase suggests that insurers are leading the way when it comes to analytics, a concept where the industry's IT and business sides have found common ground both operationally and strategically.

"One area where insurance is ahead of the game is using the vast amounts of data in the market to provide very granular risk-based pricing for their products," Blase says. "They're also experimenting with data in the market to monitor risks and help prevent or respond to risks as they happen."

On Tuesday Nov. 20 the British government disclosed a staggering breach of data privacy as the result of the loss of two CDs that a junior tax official attempted to send to the National Audit Office by courier. The NAO never received the disks, and they remain lost. The Guardian reports that the disks contained the unencrypted personal information of 25 million citizens, “including their dates of birth, addresses, bank accounts and national insurance numbers…opening up the threat of mass identity fraud and theft from personal bank accounts."

Whether this was the worst data breach in history is a matter of the criteria one applies. As this New York Times article explains, last year’s leak of veterans’ Social Security numbers affected 26.5 million and a former America Online engineer stole information belonging to 92 million people. However, the British breach was shocking not merely for the sheer numbers involved, but the proportion of the population and the nature of the information and its potential for harm.

The incident has created significant political turbulence in the U.K., including calling into question the efforts of the Labor government to institute mandatory national ID cards, which require individuals to disclose sensitive personal information. Responding to Labor Prime Minister Gordon Brown’s apology yesterday, Tory shadow chancellor George said that "Public confidence in the government and its ability to protect information has been destroyed." The otherwise well-regarded head of the tax agency, Sir Paul Gray, resigned Tuesday.

Whatever this means for the British government and governments in general, the incident once again sounds the general alarm about the vulnerability of private data that individuals choose to or are forced to disclose to supposedly responsible parties. And it shows once again that clever security measures focused on defense against malice may be inadequate in the face of official arrogance, laziness, stupidity and plain incompetence.

The effectiveness of security safeguards depends on the compliance of those with access to sensitive data, as emphasized by Dr. Mirielle Levy, head of identity management standards at the U.K.’s Identity and Passport Service (quoted in the ID card story linked above): “You can have all the virus checkers and pretty IT you want, but the real problem is people.”

One more thing to be thankful for as we brush up against the penultimate Thursday in November is that, unlike some other writers, Insurance & Technology’s editors are not on strike.

It’s just as well, too, as the insurance technology news seems to cascade with increasing volume, as if to get it all in before the end of the year. For example, several important new CIO appointments have been made recently, including Mark Oakley’s being named to State Farm’s top technology spot, Eileen Slevin becoming CIO of New York Life, and Ed Steinike taking on the CIO role at ING Americas.

Two other notable personnel changes have emerged from Celent, one a departure and the other a promotion. Craig Weber has been named managing director of the Boston-based analyst firm's insurance practice, replacing Matthew Josefowicz, who has joined financial services consultancy and information services provider Novantas, LLC.

No roundup of insurance technology news would be complete without reference to the industry's laggard status in some respect, and I&T'sNathan Conz delivers the goods with a post based on a conversation with TowerGroup's Karen Pauli about the state of e-signature capabilities.

In regulatory-related happenings, this week the AIA (American Insurance Association) urged Treasury Secretary Paulson to consider an optional federal charter (OFC) as part of the Department’s review of insurance regulation. The AIA's counsel to the Secretary is not likely to be well regarded by some people and their friends.

In other regulation-related news, last week Towers Perrin released the results of a survey that found that insurance CFOs report far greater understanding of principles-based regulation than a year ago. As we reported recently, the move to a principles-based regime for accounting, reserving and reporting signals a sea change in the insurance world and has important technology investment implications.

You can read more about the principles-based regulatory shift at the Web site of the Society of Actuaries ("the other SOA") but, as important as the issue is to the industry, we do not recommend combining the linked text with tryptophan.

There's an interesting InformationWeek article about Vanguard Group, one of this country's biggest mutual fund companies, and a $10 million project to turn its employee intranet into a personalized, customized destination for information. The new employee intranet portal will be called, creatively, eVanguard. (MyVanguard must have already been taken.)

From InformationWeek:

Instead of being a broadcast platform to communicate messages out to employees, the intranet portal's now built around personalization, giving the company's 12,000 employees better tools to communicate with each other. Vanguard's also using the employee portal to test interactive tools that it can then apply to its client-facing Web sites.

Vanguard employees can use the portal to customize their site by creating access to their Lotus Notes e-mail, selecting news feeds and managing a calendar. The company expects to save $10 million through the project by 2009, according to the article.

While the project is not yet complete, eVanguard has already provided some early functionality, as employees can now manage their time-off and benefits, seek travel approval and collaborate with co-workers via e-mail and online document sharing.

The goal of the eVanguard project, it appears, is to leverage a few Web 2.0 concepts and technologies, such as social networking and Ajax, to enable employees to more easily collaborate with one another and gather data. And while that's all well and good, what struck me most of all is how Vanguard will be using the employee portal as a way to test out new interactive tools that it could later introduce on its client-facing Web sites.

The common knock on the insurance vertical is that it's usually last to the party when it comes to adopting new technologies. While sometimes those hesitations are for good reason, too often the industry's "risk averse" nature causes it to ignore up and coming technologies until it lags behind other areas of financial services.

While some insurers are exploring uncharted waters, many more are too afraid to leave the dock. Perhaps by creating similar initiatives to eVanguard, insurers can leverage their own employees to beta test Web 2.0 projects, away from public scrutiny.

While insurers have begun to look at various Web 2.0 technologies as a means to reach customers, especially those from younger demographics, they've largely ignored the realm of video games -- a widely adopted technology that's been around since before even Web 1.0.

Maybe they've ignored it for good reason, as there's very little room for business opportunity within the 2D world of traditional games. However, as the video game industry increasingly connects gamers to one another -- via XBOX Live or Playstation 3's online network -- and as video game technology evolves -- changing the average gamer from a passive participant to an active contributor – the opportunities for insurance carriers within this space are growing.

Last Friday, Louisville, Ky.-based heath insurer Humana (11.3 million members) became one of the first carriers to embrace the potential of video games when it established a multi-pronged initiative to find the best ways to connect with consumers using game technology. According to a press release, Humana will be working with Ben Sawyer, co-founder of the Games for Health project and J.C. Herz, a social networking and multiplayer online world expert, as part of the initiative.

Dr. Miguel Encarnacao, Humana's Innovation Center director of visual analytics and advanced human-media interfaces, told me that there are various drivers behind the initiative. "On the one hand, video games are obviously a very popular medium. Since Humana is always exploring new ways to engage with its members, we have to look at new media and games are on top of the list at this point," Encarnacao explains.

Encarnacao also says that Humana considers itself a forerunner in changing healthcare in treatment and prevention. "People are very engaged in games. From early childhood we are using games to learn and to socialize. One question [for Humana] is: Are games a way that maybe we can influence health behavior?" he asks.

In our interview, Encarnacao specifically mentioned "exer-games" as one possible focus point. "Looking at virtual running paths while running on a treadmill and Dance Dance Revolution are typical [exer-game] technologies where people can get a lot of exercise in a very entertaining environment," Encarnacao says.

One objective of exer-games would be to influence consumers' exercise behavior. "If these are the types of games that will get people physically moving, then the next research question becomes: how can we take the experiences gained in that environment to get people to exercise when they are no longer in such an environment, in the real world?" Encarnacao says.

Humana has assembled a team to carry out the initiative composed of members from different parts of its Innovation Center, including those with expertise in customer engagement, clinical research, market research and interactive technologies. The team is considering several different opportunities to impact consumer behavior, many through collaborative efforts with academic institutions and video game industry partners.

Under one such partnership, with Touchtown, Humana is targeting nursing homes and assisted-care facilities. "We're working with Touchtown to roll out exer-game technology to these environments to see how these technologies might help elderly people to maintain or even regain physical mobility," Encarnacao says.

Touchtown will field test the exer-game technology, which Encarnacao declined to discuss in further detail, in the coming weeks at Florida and Tennessee-based elderly facilities. Humana plans to roll out the system in the following months, according to Encarnacao. "We're working with Touchtown to roll out exer-game technology to these environments to see how these technologies might help elderly people to maintain or even regain physical mobility," he says.

According to a press release, the Humana team will also be collaborating with the University of South California's GamePipe Laboratory to research and develop new video game interfaces "to tie real world exercise to virtual worlds." Encarnacao says the Humana team is currently waiting for a project description from USC regarding the types of games students there will be working on.

"Most of the [game development] will go to outside vendors. Humana is focused on getting the right content into games and the right research out of games," Encarnacao told me.

Because the initiative is so broad, success of the program will likely be measured on a project-by-project basis. "Based on the types of games we will be looking at, there will be different measures," Encarnacao explains. For games that aim to influence behavior, Humana's Miami-based health services research center will perform long term quantitative research.

Only a few months ago, in a 2007 Tech Savvy CEO profile, Thomas R. Watjen, president and CEO of Chattanooga, Tenn.-based employee benefits provider Unum Group (2005 assets of $51.9 billion) described Simply Unum.

A new operating platform, Simply Unum was a project two years in the making that, Watjen said, would simplify the process an individual might go through to service a customer. Earlier this month, Unum officially launched the new platform, calling it one of the most significant product and service initiatives in the company's history.

The platform, designed specifically for small and midsized business owners, represents substantial changes in the technology and processes in place at Unum. "It's been a very transformative initiative for us," says Kathy Owen, senior vice president of business applications at Unum. "It really covers the entire insurance value chain. All the way from quote and proposal to the payment of the claim."

Owen says Simply Unum is unique because it combines a very broad set of products under a single platform, giving customers more choice and increased simplicity at the same time. "It's a combination of process change, technology change and a new way to view product," she says. "How you bring the voluntary and employer-paid products together has really been one of the dilemmas in the [employee benefits] marketplace. So, from a platform perspective, we've tried to bring something together that offers a more simplified process that enables that."

In the first phase of the roll out, which launched this month, Unum enabled four of its offices to begin quoting and selling products offered under the new platform. In November, a second wave will add the corresponding back office administration pieces. In January, the platform will be rolled out to the rest of the marketplace.

The new system will allow Unum to quote multiple products and create integrated proposals. Customers will have access to a single Web site and increased self-service capabilities. "It enables employers to view all their benefits from one point of view," Owen says.

Several new tools were implemented leading up to the launch of the new platform, which is built around a services-oriented architecture, including a workflow solution from Tibco, Microsoft Customer Care, Microsoft BizTalk and Exstream's Dialogue document management solution.

Regarding the buy versus build debate, Owen says Unum likes to buy when it's looking for capabilities that are fairly standard in the marketplace. "We look to vendors to provide the plumbing, so looking at a workflow tool would not be something we would choose to build," Owen explains. "Where we really do invest more of our time is around core business logic. That is an area where we think we have some unique knowledge. Spending time and energy on those things will be a value for the company."

A changing industry is driving the transformation of the finance function within insurance companies and financial services in general, as companies seek to cut operating costs and improve revenue in an effort to achieve greater profitability and return on equity. But the proximate drivers of and key tools to achieve that transformation are technology related, according to a BearingPoint study.

The McLean-Va.-based consultancy conducted a 2006 survey in collaboration with IDC (Bedford, Mass.) across various industries and geographies of 153 CFOs, approximately 25 percent of whom represented financial services companies. In 2007 BearingPoint separately surveyed 30 financial services CFOs. When asked to identify drivers finance organization transformation, 67 percent of financial service CFOs said demands for better information and insights to improve ROI. Fifty percent of those CFOs responded that new technology implementation enabling process improvement was driving transformation, and 47 percent said that the need to respond to high operating costs was a driver.

The research also revealed that financial services CFOs found transformation more difficult because some of the “low-hanging” fruit of cost-cutting opportunities had already been harvested. Other impediments cited were lack of budget to pursue further cost-cutting initiatives; low morale and the risk of losing additional staff; and lack of personnel with the skills needed to identify new cost-cutting opportunities.

Leveraging ERP

In the face of those challenges, 70 percent of financial services CFO respondents identified the implementation of a single enterprise resource planning (ERP) system for finance as the most effective strategy for cost-improvement in the short run. Financial services CFOs, in contrast to their counterparts in other industries, also responded heavily in favor of more open and simpler application architecture, with 60 percent saying that service-oriented architecture (SOA) and XML are critical to their overall performance.

ERP figured high among favored long-term solutions as well (78 percent), along with business process outsourcing (BPM). However, the top long-term strategy, identified by 82 percent of the respondents, was the implementation of consistent data definitions and technology standards.
The insurance industry faces some of the same general drivers as other financial services verticals, such as globalization, M&A and intensified regulatory scrutiny. Another important factor is demutualization and the market responsibilities insurers have taken on by becoming public companies, according to Paul McDonnell, BearingPoint’s global insurance segment leader.

Historically the insurance finance function took a more purely administrative approach, focusing on the top line, according to McDonnell. “They assumed that if they got the revenue that everything else would follow,” he says. “Now they’re getting much more engaged in understanding profitability and trying to drive strategic decision making based on an understanding of the metrics of the business.”

Insurers face the challenge that the means of generating vital financial information is scattered throughout the enterprise, according to McDonnell. “A lot of the calculations associated with the financials of a company are actually embedded in legacy policy administration systems,” he explains. “One of the things insurance companies are trying to do is extract the accounting rules out of these legacy systems and bring them into a centralized system.”

LOS ALTOS, CALIF. - IRONKEY has launched the IronKey Secure Flash Drive with Internet Protection Services, a secure USB flash drive that protects the gigabytes of information stored within it using onboard hardware encryption, helping insurers and other organizations meet regulatory requirements such as Sarbanes-Oxley and HIPAA. IronKey also features portable secure web surfing via an onboard Firefox web browser with Tor technology, a tamperproof and waterproof metal casing and password management and recovery capabilities.

www.ironkey.com

DTRIC Insurance Company (Honolulu) has selected Honolulu-based DRC's DecisionMaker extended lines policy administration system to process its newly expanded commercial insurance lines of business.

Workforce Safety & Insurance (Bismarck, N.D.), the exclusive workers' compensation carrier in North Dakota, has selected San Ramon, Calif.-based Valley Oak Systems' flagship iVOS solution as its new workers' compensation system.

Dean Health Insurance (Madison, Wis.) will implement Plano, Texas-based EDS' MetaVance Adminstration and Finance System, a highly scalable system featuring a service-oriented architecture that is designed to automate core administrative processes such as enrollment, provider management and claims processing.

Bala Cynwyd, Pa. - Primavera Systems has released Primavera 6.0 (P6), a new version of its flagship enterprise project and program management software. Part of a solutions suite for project-driven organizations, P6 will feature fully web-based capabilities, interactive Gantt charts and screen layouts, dashboards, advanced management capabilities, extended reporting and analytics, enterprise integration with SAP and risk management capabilities from Primavera PertMaster v8, another recently released solution.
www.primavera.com

Hyland Software (Cleveland) has announced it will partner with Sapiens International (Research Triangle Park, N.C.) to provide insurance clients with tighter integration between Sapiens INSIGHT, a Web-based insurance administration suite and Hyland's OnBase ECM software suite.

Phoenix Indemnity Insurance Company (Dallas) will license and implement Connective Technologies' (Houston) TEAM-UP Download application to provide once-and-done processing in an industry-compliant, data-secure environment for agency downloads.

Looking to update its cost estimator platform while it builds new business quoting software, Civil Service Employees (CSE) Insurance Group ($126.1 million in gross written premium) selected ISO HomeValue to help agents estimate the costs to re-build a property in the event of a total loss.

“We expected to modernize the replacement [cost estimator] software along with the quoting system,” says Keenan Wong, an underwriting project supervisor at CSE who oversaw the testing of different solutions and ultimately recommended ISO HomeValue to upper management. “A key benefit of ISO HomeValue is that it is web-based. The software can be made available to different parties very quickly, which was important because our agency force is comprised of independent agents.”

According to Wong, CSE began the selection process in the spring of 2006 and chose ISO HomeValue in August of that year. The new solution went live in October on an interim basis and then was officially implemented in January 2007.

“We wanted to ease our agents into it,” explains Wong. “We didn't want to say, 'effective this date, you can no longer use the old software' without giving agents the opportunity to adjust. So, we gave the agents several months of lead time before we turned off the old cost estimator.”

The San Francisco-based insurer's previous estimator software required the company to send updates to its agents in the form of CDs and diskettes. “[Now] we're able to have the most up-to-date software available to agents online without requiring them to update their estimators with disks mailed by CSE.”

The old system also struggled to provide accurate cost estimations for high-value homes. “Before, we had to use two different programs, one for average homes and one for high value,” Wong says, “ISO HomeValue's replacement costs are very comparable to the old system. however, the software can accurately run replacement costs for both average and high valued homes through one program.”

After contracts were signed, Wong says the implementation took three weeks. Agents could then access the solution directly from CSE's online agent portal. Wong says the agents particular enjoy a “pushpin database” that automatically populates tax and title information when available online through government sources.

Going forward, CSE plans to further reduce the data input required of agents by integrating ISO HomeValue with the new business software it is developing. “At some point, we intend to have our new business system automatically transfer information to the cost estimator in order to minimize the amount of manual input involved for the agents,” he says.

The announcement on July 17th that MajescoMastek has acquired Vector Insurance Services is further evidence that the Indian parent company Mastek is working hard to find a place at the North American insurance technology vendor table.

Late last year MajescoMastek announced the appointment of Billy McCarter as president of the Edison, N.J.-based company. The former Fireman’s Fund CIO — and Insurance & Technology Elite 8 honoree — had most recently been front man for Torrance, Calif.-based ePolicy solutions (acquired in July 2006 by ChoicePoint and then folded into the Insurity brand).

McCarter took the MajescoMastek show on the road to the ACORD/LOMA Insurance Systems Forum in Orlando. There he expressed the belief that MajescoMastek would benefit from having an American front man.

With the Vector acquisition, MajescoMastek gains even more local expertise, targeted to the life & annuities sector. Vector provides policy acquisition, administration and processing solutions to North American carriers, counting several of the region’s largest L&A carriers as its clients, according to a MajescoMastek source. The acquisition complements MajescoMastek's existing L&A capabilities, which include its Elixir policy admin platform.

Larry Blakeman has moved from being CIO of MetLife Auto & Home to the CIO role for the carrier's Individual Business division, in the wake of former Individual Business CIO Jeff Stoll's retirement.

Blakeman comes to his new role after a diverse technology leadership at MetLife. Before leaving his Auto & Home CIO role, he had taken on responsibility for MetLife's enterprise data management and enterprise architecture functions, and previous roles include responsibility for the carrier's corporate actuarial systems and enterprise reporting group, as well as enterprise wide financial systems and financial systems for both Individual Business and Institutional Business.

Blakeman characterizes his experience at MetLife as "a good balance between the back-office systems - the financial and corporate areas where I started - and the sales side and front-end of the business." He adds that, being out in the line of business [at Auto & Home] with P&L responsibility was a great learning experience, and one that positions me well for being CIO of our Individual Business."

Financial services companies have expanded offshore delivery functions 18-fold over the last four years, according to a recently released report for Deloitte Touche Tohmatsu. Yet while the insurance industry is in-step with its FS brethren in some areas of offshoring, in others it still lags behind, says the author of the report.

With regard to offshore IT capabilities, insurance stands alongside the best practices found elsewhere in financial services, says Chris Gentle, a London-based associate partner at Deloitte and the report's lead author. “However, insurance does typically lag behind in other areas such as business process, finance, accounting, HR and, to an extent, call centers,” Gentle relates. “We find that insurers are particularly behind retail banks and investment banks, who have been leading the charge.”

And it's quite a big charge. According to the report (Global Financial Services Offshoring Report 2007), more than 75 percent of major financial institutions have offshore operations, compared to less than ten percent in 2001. Further, the average number of staff employed offshore by a given company has increased from 150 to 2,700 over the last four years. The report estimates that the financial services industry presently saves $9 billion a year thanks to offshoring.

“The acceleration is extremely significant,” Gentle says. “An 18-fold increase over four years is quite an incredible shift within the industry and it's changing the very basis of competition within financial services. It should very much be at the top of insurers' strategic agendas going forward.”

The report identifies three stages of development-build, optimize and release--with regard to a company's offshoring operations, with the first stage focused largely on labor arbitrage and the latter two focused on increasing scale and scope and capturing full value, respectively.

“Nearly all insurance companies find themselves in the build phase, and we see most of the industry now on the cusp of the optimize phase. [Insurers] haven't moved into the optimize phase and that is where you really release significant value by re-engineering processes on a worldwide basis,” Gentle says.

One key for an insurance company, or any organization looking to leverage the full benefits of offshoring, is avoiding a “champagne moment,” Gentle suggests, referring to the proclivity of business leaders and board members to cease their interest in offshore operations after the initial set up.

“There's a tendency to fly the board out to India, do the tour and have the champagne. Then everybody gets back on the plane and, to some extent, forgets about what's going on with offshore capabilities,” Gentle explains. “The champagne moment is really about not having an effective long term strategy.”

While Gentle does point out that there are short-term benefits to be had, he also says there's a correlation between companies that have increased the scale and scope of offshore capabilities and companies that have been the most successful.

Continued company involvement in offshore operations, post-champagne toast, can only help efforts to achieve similar success. Other best practices include making sure there is good clarity regarding which functions will and will not be moved offshore and assigning one executive with the responsibility and accountability for offshore operations across the enterprise.

By Nathan Conz

As part of its strategic effort to distinguish itself in the extremely competitive Chicago market through Web-oriented customer service, Delta Dental of Illinois (DDIL, Lisle, Ill.; about $400 million in premium) has launched self-service reports to group benefit administrator users of its employer portal. The Business Objects XI application gives users the ability to download reports and access real-time information in a variety of presentations, eliminating time-consuming requests for special reports.

Delta Dental of Illinois has traditionally delivered monthly performance reports to its clients, but benefit administrators commonly request information not included in standard reports, according to Ross Gosnell, CIO, DDIL. The procedure for requesting non-standard reports began with the benefit administrator writing specifications and contacting the client’s DDIL account executive. The account executive would then write a request to IT, IT would deliver the report to the account executive, who would in turn deliver it to the benefits administrator.

"There is security involved in that process because you’re transferring protected health information in many cases, so there’s a whole drawn-out process that takes, in the best case, several days," Gosnell explains. With the carrier’s new self-service function, however, benefit administrator users of DDIL’s employer portal can receive specially requested reports in as little as an hour.

DDIL rolled out the reports self-service capability in April, having completed the application last fall and piloted it with selected customers.

The parameter-driven reports allow authorized users to shape delivery of data according to different organizational or time parameters. For example, users can request reports of month- or year-to-date, or one quarter compared to another. "What this gives them is the ability to mine their data, based on their criteria and their log-in," Gosnell says. "They can change reporting periods on the fly, they can look at multiple divisions and they have the ability to drill-down and look at real-time data—they can actually run a report in real time and see how much money they’re spending on dental claims, how many of their subscribers have gone to the dentist that month."

The drill-down capability means that a single online report can equate to four different reports—and report request processes—in a paper-driven environment. Users can download the reports directly from the portal in PDF, Excel or comma-separated files.

The reports are created through interaction of the Business Objects XI business intelligence platform with the carrier’s Oracle 9i database. "We have a strategic plan to provide information across the enterprise to end users, knowledge workers and external stakeholders using the Business Objects XI platform," says Gosnell.

DDIL originally invested about $100,000 in the Business Objects platform over two years ago and has expanded the relationship since then, Gosnell reports. The implementation of the self-service reporting capability included the development of a single sign-on capability that took about six weeks to develop.

--By Anthony O'Donnell

While there are many signs that the insurance industry has made overall customer service improvements in the past few years, a recent study shows it still has a way to go when it comes to call center satisfaction. According to the CFI Group’s Call Center Satisfaction Index, the insurance sector trails all other industries surveyed — save personal computers — in terms of call center customer satisfaction.

The insurance industry earned an overall score of 68, which the report called worrisome. Banking call centers scored a 77. Catalog retailers earned the highest marks, with a score of 80. The index was based on a 100-point scale.

The study showed that customer satisfaction was closely tied to call resolution. Within insurance, the 73 percent of respondents that reported that their issues were resolved also expressed overall call center satisfaction, awarding insurers an average satisfaction score of 80. For the 22 percent (the remaining 5 percent didn’t know if their issue had been resolved) whose issues were not resolved, however, the average satisfaction score dropped to an abysmal 29.

Further, insurance sector customer service representatives (CSRs) scored well overall but again dropped the ball when it came to call resolution.

In an effort to differentiate itself in a crowded auto insurance marketplace, Seattle-based Safeco Insurance recently rolled out the Teensurance program, a bundle of technologies and services designed to aid parents as they deal with their new teen drivers. The program was launched by Open Seas Solutions, a division of Safeco formed last August to focus on research, development and innovation.

The Teensurance program allows parents to monitor specific aspects of their teenaged children’s driving, thanks to the Safety Beacon, a GPS device installed under the dashboard. Parents can set specific speed, distance, location and curfew limitations, according to Safeco. Notifications are sent when those limits are exceeded.

Teensurance will be available starting June 27. To view a video demo of the Teensurance system in action, visit the Teensurance Web site and click "View Teensurance Video."

—Nathan Conz

Novato, Calif.-based Fireman's Fund has issued a press release saying CEO Joe Beneducci has resigned, effective immediately. The carrier has named former CEO, Chuck Kavitsky, president of Allianz of America, interim CEO.

This very sudden announcement included the following comment:

“Joe has been a significant part of Fireman’s Fund’s success and I want to thank him for his many contributions,” said Kavitsky. “We are fortunate that Fireman’s Fund has deep bench strength in its leadership team in addition to a strong position in the property/casualty insurance market. Our direction and strategy will continue as planned.”

There was no further comment from Fireman's Fund about the reason for Beneducci's departure or whether he was moving on another opportunity.