Technology Drives Insurance Industry GrowthBy Bob Violino | Posted 2012-10-17 Email Print
To compete successfully and operate more efficiently, insurance companies are deploying information technologies such as mobile devices, social media, big data, predictive modeling and cloud computing.
By Bob Violino
More than two dozen emerging technologies address key challenges in the insurance industry, such as growth and retention, risk and compliance, and efficiency and expense control, reports industry research firm Celent. The key IT solutions deployed to help deal with these issues include mobile devices, social media, big data, predictive modeling and cloud computing.
Celent estimates global IT spending by insurance companies will reach $40.6 billion in 2012, an increase of 6.3 percent over 2011. This figure is substantially higher than the 1.1 percent IT spending growth increase experienced in 2011.
The research firm expects global spending on IT products and services to grow to $157.5 billion by 2014, a 5.8 percent compound annual growth rate from 2012. The firm's queries of CIOs found that "for the most part, core systems are still the main drivers of IT spend when it comes to technology," says Karen Monks, an analyst at the firm. "The largest portion of their IT budget is still geared toward maintenance versus new projects."
But when it comes to "hot" technologies, Celent's conversations with CIOs point to systems "that are geared toward the customer and producers, to make it easier and faster to work with the insurer," Monks says. More than 90 percent of insurers expect to be using social media for marketing by 2015, and more than 80 percent expect to be using mobile technologies for claims, customer service and field sales.
Consider New York-based New York Life. The insurer has launched several technology initiatives aimed at improving operational efficiencies for its policy holders, agents and employees, says Sue Ericksen, senior vice president and CIO.
"For our policyholders, we are providing self-service capabilities, giving them the ability to update addresses and the like online," Ericksen says. The company developed a Java-based portal a few years ago that was initially available on a read-only basis for customers. It has steadily added capabilities, including the self-service features that enable customers to update personal information related to their coverage.
The portal leverages Web services that the company's IT department developed, which access the back-end policy administration systems. Because the portal provides self-service capabilities, New York Life customers can update information online, freeing up service center personnel to perform other functions.
For its 12,000 agents nationwide, New York Life is implementing software to support the use of electronic application forms for insurance policies, with the goal of automating process steps and achieving straight-through processing, Ericksen says. With STP—in which entire processes can be conducted electronically without the need for manual intervention—insurance firms can decrease operating costs and speed up services.
The software that enables electronic applications is Intelligent eApp, a component of the New Business Accelerator suite from Computer Sciences. New York Life customized the product for its annuity application and recently rolled it out to its general offices.
"Historically, life insurance and annuity application [forms] have been paper-based," Ericksen says. "These products often get sold at the dining room or kitchen table, where the agent and customer talk" about the policy.
But increasingly agents want to interact with customers online, and that's what the electronic applications process enables. The firm sees electronic applications capabilities as a necessity to compete in today's market, and to attract and retain agents.
"I thought younger agents would be the ones to want technology, but [demand for electronic processing] is regardless of age," Ericksen says. "If we didn't have more technology available to them, it would be a detractor" to bringing on new agents.
For its employees, New York Life is providing access to corporate systems remotely from devices such as smartphones and tablets. In addition, it has rolled out a Cisco Systems unified communications (UC) solution to underwriters, which will increase opportunities for telecommuting.
The market for underwriters is competitive, Ericksen points out, and by providing technology that enables better work-life balance, New York Life hopes to be the employer of choice for top prospective employees.
Maintaining a Competitive Edge
Another insurer, Safeway Insurance, is the largest privately held, family-owned insurance company in the United States. The majority of its auto, home and renters insurance policies are sold via independent agents, so it's important that the company maintain a competitive edge with the online tools agents use to sell insurance.
"In recent years, like most businesses, we have shifted our point-of-sale system to a Web-based solution, which allows our independent agents access directly into our policy system in order to provide their customer with real-time pricing, payments and print documentation, if desired," says Mike Leather, director of IT operations.
This required IT to provide a reliable and fast infrastructure in order to maintain the agents' focus on selling Safeway products over those of its competitors. "If agents try to access the online point-of-sale system and encounter performance or availability problems, they'll move on to the carrier that has the next-best price and sell that policy to the customer sitting in front of them," Leather says.
The company needs to maintain nearly 100 percent uptime for its Microsoft SQL Server-based point-of-sale application, called SafewayXChange, which agents rely on to provide quotes to customers, Leather says. Several years ago, a storage I/O bottleneck hampered the performance of SafewayXChange, undermining sales efforts. As a result, agents complained of slow response.
The IT team quickly determined that the direct-attached storage system in place was no longer adequate for its application. It evaluated options and decided to deploy a virtualized storage area network (SAN), the Dell EqualLogic iSCSI. The system has enhanced performance and sped up recovery times.
As a result, the firm can support 16 percent more customers and 71 percent more agents, with no increase in the size of the IT staff. Other benefits include a 60 percent reduction in storage footprint; 99 percent decrease in complaints about slow performance; 20 percent improvement in I/O performance; and a 75 percent reduction in tape usage with disk-based backups, resulting in savings of $6,200 per year.
Using Personalization Technology
Another insurer benefiting from IT initiatives is Humana, a Louisville, Ky., provider of health benefits. After months of market research, the company learned it needed to improve customer communications, specifically its explanation of benefits (EOB) statements, which are sent to Humana's more than five million Medicare drug benefits and commercial customers.
EOBs are intended to explain the status of benefits claims, but Humana's members found them difficult to understand and lacking the personal relevance they needed to feel confident in managing their health care.
Humana launched a project to redesign the EOBs and change them from point-in-time transactional documents to consolidated summary-level communications that provide relevant and actionable guidance that's easier to read and understand.
While the newly designed EOBs were well-received, Humana didn't have the personalization technology needed to produce the redesigned statements for the volume of customers it serves. The company sends more than 20 million EOBs each year, and needed a solution that would allow integration of multiple data sources with tools that make design and document composition more flexible.
Humana implemented Hewlett-Packard's Exstream product to transform the traditional EOB statement from a black-and-white document with few graphics and little to no personalized messaging into SmartSummary, a colorful and visually enhanced personalized document that helps members make informed decisions about how to manage their health care benefits.
To produce the SmartSummary, HP Exstream draws data from Humana's customer databases and other sources, and incorporates icons and images, tables, charts and other design images to visually communicate information such as benefits usage, co-pay amounts, medical articles, health and wellness coupons, and suggestions on how to lower monthly spending.
"HP Exstream software enables Humana to meet a critical corporate goal: to more effectively communicate with customers by using personalized, high-quality, highly readable documents at the lowest cost possible," says Chris Nicholson, service vice president, Strategic Consultancy, at Humana.
Using HP Exstream, Humana also developed SmartSummary RX, a monthly benefits statement summary tailored to Humana's Medicare members. SmartSummary RX provides Medicare enrollees with a record of prescription claims that includes information such as full-color pictures of pills, dosage, previous refill dates, prescribing doctor and pharmacy information.
Benefits of the technology include better customer retention: Customers who received newly designed EOBS are 14 percent more likely to say they'd renew their Humana plan than those who didn't receive the new statement. Other gains include greater efficiency. Rather than send out separate notices, Humana can now combine communications into a single document for improved white-space and blank-page management, saving $250,000 per month on production costs.
That's the kind of efficiency gains insurers are seeking—and finding through a variety of IT investments.