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Compliance, Web Services And XML Star in 2004

Insurers will begin to roll out effective Web services initiatives, while striving to comply with a myriad of regulations, industry experts predict

THIS MONTH'S EXPERTS

Bill Ruh
SVP of Professional Services
Software AG (Reston, Va.)
Michael Gordon
Senior Manager, Insurance Consulting
Cap Gemini Ernst & Young (New York)
Bill Pieroni
General Manager, Global Insurance Industry
IBM (Armonk, N.Y.)
Paul Himes
Executive Vice President
Keane Worldzen (Boston)
Tim Plunkett
Global Industry Consultant, Insurance
PeopleSoft (Pleasanton, Calif.)

Q: What are some of the most pressing concerns you are hearing from insurance CIOs?

A: Bill Ruh, Software AG: In speaking with the CIOs of insurers, the initiatives are focusing on reducing the silos in the business to move towards a unified customer view. With a unified view, it is easier for carriers to expand their product portfolios, target products to customers and to identify "bad" customers. Also, many clients are looking for executive dashboards to get efficiency of reporting and to enable management to take action based on the up-to-date data.

A: Michael Gordon, Cap Gemini Ernst & Young (CGE&Y): In 2004, the focus on reducing costs still is on the tops of minds of most insurance technology executives. To reduce costs, many are still tackling the legacy systems issue. Many of our clients are focusing on enhancing or replacing policy administration systems, claim systems and underwriting systems.

A: Bill Pieroni, IBM: Core insurance continues to be the major concern for CIOs. The limitations and inefficiencies of multiple, legacy underwriting, policy administration and claims solutions for property and casualty insurers and policy administration for life insurers have been an obstacle for increased service and growth.

A: Tim Plunkett, PeopleSoft: Alignment of IT projects with the business strategies is the most pressing concern I've been hearing. With scarce resources, the CIO has to make sure that the projects his or her team is working on are making contributions to the bottom line. A second concern I hear about is efficiencies. To quote one CIO: "It's not that I want my people to produce more widgets each day. I want them to produce the same number of widgets each day but in less time, which frees them up to do other tasks."

Q: Many buyers are consolidating their IT expenditures with a few IT "partners." What are the advantages for the carriers? The disadvantages?

A: Ruh, Software AG: As technology continues to develop at a rapid pace, an insurance organization can't afford to train everyone on everything, so they rely on partners that can bring in expertise in certain areas. By having select partners, many insurance companies are looking for leverage in the negotiations that they have with suppliers. A possible disadvantage is that they chose the wrong partner, one that uses older technology. Carriers may be forced sometime in the future to move off of their aging systems in a big-bang overhaul-something that is expensive and risky.

Q: Where are the smart information/business technology dollars headed in 2004?

A: Ruh, Software AG: There will be a continuation of "meat-and-potatoes" investment, namely the replacements of legacy systems. The more innovative IT dollars are focused on channel development to make the communications with the channel more efficient to better manage the agent/broker and expand the wallet share with the client.

A: Paul Himes, Keane Worldzen: The smart IT investment for insurance CIOs in 2004 will be leveraging Web services to customer-enable their systems. Customer self-service will improve the customer's personal interactions with their insurance provider and will also remove many costs that the insurer currently incurs. Shifting the labor costs through customer self-service will be beneficial to every element of insurance.

A: Gordon, CGE&Y: It is definitely headed to upgrading core systems, such as policy administration and claims systems. In most cases, by working on legacy systems insurance carriers are solving two problems at the same time-reducing costs and increasing functionality of the systems for the business.

A: Pieroni, IBM: Insurers will continue to spend their information technology dollars on improving their core operations in 2004 as they remain focused on driving down costs. Pressure remains to increase efficiency despite the improving economy. Top priorities include improved quality of underwriting, more reliable information on risks, enhanced claims management, and better business controls and reporting. Web-enabling applications for agent/customer access, new product capabilities and customer-focused strategies will also be important as insurers realize the benefit of managing the agent and customer lifetime value.

A: Plunkett, PeopleSoft: Our customers and prospects are looking at CRM to improve customer retention and target-market the most profitable prospects. Portals are becoming much more important in delivering services across vast organizations and providing employees role-based access to the applications they need to do their jobs. E-learning systems are also getting much more attention as carriers struggle with making sure their employees have the right skill set at the right time so that they can deliver on their strategies.

Q: The merger and acquisition business is heating up. Will this continue? What are some of the drivers behind the M&A activity?

A: Plunkett, PeopleSoft: Convergence was the driver of the last M&A market in 1999-2000. Divergence is the driver this time. It's no coincidence that these mega mergers are happening in all insurance segments: first life, then health and now property and casualty. We will still see books of business being sold off and bought to grow, but that will be for more fine-tuning. The big deals will continue; like it or not the public views insurance as a commodity, and if the carriers under consideration all have good A.M. Best ratings, customers will go with whoever is cheaper unless they see a certain value-add.

Q: In mergers and acquisitions, what role does IT play? Is it an afterthought, or is IT part of the due diligence process?

A: Ruh, Software AG: IT is now part of the process, but it is not a driver. Insurers need to figure out how the integration will happen and how long it will take. Technology is not a deal breaker.

A: Gordon, CGE&Y: Technology definitely plays a role in M&A decisions. In most cases, insurance companies are looking for economies of scale when it comes to acquisitions. If the technology cannot be integrated or migrated, many of the benefits-reduced costs, economies of scale-will be lost.

A: Pieroni, IBM: IT factors have had limited influence on M&A deals. However, there is recognition that the costs of integrating systems should be a part of the process. Reducing integration slack is pivotal to successful M&A executions. As part of several M&A deals, IBM leverages a tested methodology to accelerate an insurer's ability to integrate and reduce redundancies of multiple IT systems.

Q: Which technologies will make an impact in 2004?

A: Ruh, Software AG: It is going to be XML and Web services. Insurance is about information. We are seeing lots of projects that have XML as part of it. As far as wireless and mobile technology, I think we are a couple of years away from that. There are carriers experimenting with pilots.

A: Pieroni, IBM: Because of poor scalability and poor handling of enterprise-level complexity, insurers are starting to retreat from proprietary IT strategies, and turning to open J2EE, Web Services, XML, SOAP and other standards. Among the four most important: Linux-increasing numbers of successful references, lower IT costs, plus increasing technical maturation of the platform are enticing more and more businesses to bring mission-critical applications to this open source platform; Component based design-across the board software vendors are componentizing their offerings, either by selling their solution as a single component, an integrated solution managing other components or by breaking up long-established ERP solutions into more openly accessible components; Wireless-advanced wireless devices (e.g., tablets, Bluetooth cameras, PDAs, laser measuring devices) and mobile personal gateways (MPG) are advancing rapidly, and will soon make anywhere/anytime sales, predictive sensor technologies, and wireless claims operations commonplace.

A: Plunkett, PeopleSoft: XML has proven itself a viable technology as evidenced with ACORD and IVANS. We are also seeing companies experimenting with wireless and Wi-Fi because of competitive pressures. They feel that these technologies may be the next "magic bullet" and that they will be left behind if their competitors get out ahead with these technologies. However, in terms of full adoption, these technologies still have to be proven and tested. In addition, wireless may become a liability issue because of security concerns. Web services are also starting to be seen as a way to maximize a company's Internet strategy investments. I've also seen tablet PCs really taking off. With built-in cameras and the ability to write down descriptions in a digital format, tablet PCs allow underwriters and claims people to upload all of the information from the field to the computer simply and efficiently.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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