The manner in which insurance agents, brokers and companies invest their information technology spend in 2004 may well have the potential of positioning the entities for future growth and development more now than ever before.
The current market cycle provides the opportunity to align disciplined underwriting, further premium refinement and innovative claims management, with a cultivation of the next layer of economic efficiencies which, when merged with technology solutions, can yield not only positive returns but competitive differentiation as well.
As insurance markets re-examine their technical and operational business operations to further increase ROE and increase shareholder and policyholder value, the query will always remain, exactly how much and in what dedicated areas should discretionary dollars be budgeted?
A recent study by the TowerGroup forecasted property and casualty insurers will increase their IT spending by 10.4 percent over the amount invested in 2003, in the areas of infrastructure, maintenance and development. While rating agencies report a trend back toward positive net income, there remains some skepticism on the full potential of the industry’s long-term growth as the adequacy of loss reserves, the ability to achieve and implement tort reform, and the consequences of terrorism and catastrophes remain as outstanding issues. Therefore, the extent to which budgetary dollars are actually committed will remain to be seen.
For most agents, however, the decision to embrace technology to improve front and back office capabilities has already become more a requirement than a discretionary issue.
As more due diligence and audits are conducted to determine, among other things, the extent of technological commitment as a core function and the sophistication of platforms and processes, the more savvy agents will be rewarded with the ability to attract and command more market share of the business.
Many carriers already require renewal contracts and binding authorities to be conditional and dependant on a full implementation of IT applications to streamline operations and reduce overhead expenses in order to maintain positive net income results and produce transparent, immediate, bottom-line expectations.
Similarly, ceding companies will find more opportunities with reinsurance markets that, likewise, have seen the value of modifying legacy systems for more practical and improved systems. Another integral component of the equation is the continued sharing of knowledge among business partners to improve one another’s capabilities and address matters that can be corrected as warranted before a problem has become insurmountable.
The advancements now in place include communicating by the click of a mouse, binding business, amending policy coverage through revised endorsements and submission of bordereaux electronically, to the viewing—in real time—the status of the program, line of business and performance measurement of underwriters, claim professionals and risk managers taking ownership for the respective policyholder’s or producer’s portfolio.
In addition, traditional, inefficient, paper laden processes requiring re-keying of data and important information that often result in human errors are virtually eliminated with technology now in place. In an industry where the volume of submissions continues unabated and opportunities are being shopped seamlessly, time is money.
Thus, in 2004, the impetus will be on eliminating incompatible systems and reconstructing core systems including underwriting processes, policy administration and collections as well as claims management. Another area of focus will be on improving speed of distribution and customer service capabilities and, thereby, also strengthening the agency management system. A current example is Project Kinnect in the London market.
Kinnect is a secure electronic platform designed to allow the existing systems of brokers, carriers and underwriters to communicate. Customers may choose simply to record risk data prior to any discussions, use the platform to send and receive data as they negotiate or transact all their business electronically over the platform. They can assess and respond to each submission without the need to re-input data. This speeds up the process and reduces the amount of re-keying and the possibility of errors.
The strategy now at work will merge the integrated array of IT processes and program applications with the intent of producing a model that is both customer focused and internally compatible in improving the ROI equation. While “customer satisfaction” is difficult to measure quantifiably, an increase in renewals, cross-selling opportunities with other insurance products, and the ability to attract and retain more agents and distribution partners will secure a measurable competitive distinction, thereby adding to the success of the IT investment.
There are numerous technology solutions already available to improving efficiencies and performance. Premium financing and risk modeling, document imaging, data mining and claims administration platforms are but a few examples. However, the one main impediment for many is the entity’s legacy system. In order to achieve full scalability and compatibility, these need to be replaced or overhauled by companies seeking to improve their overall performance and to achieve greater efficiencies and connectivity with their business partners to remain competitive. If data and processes cannot be integrated or migrated, the benefits of reduced costs and economies of scale will not be fully realized.
In March 2004, more than 300 IT professionals, company and agency principals will gather to review and discuss these and other issues at the Insurance Automation and Technology Conference in New Orleans. The annual session is sponsored by the American Association of Managing General Agents (AAMGA), and represents the single conference of its kind for the wholesale insurance market.
The fact that attendance has nearly doubled this year from that in year’s past is a testament to the fact that notwithstanding the ability to transact multi-million dollar insurance business in milliseconds, it is still a market based on relationships, networking and trust. While recent studies suggest consumers in the Generation X and Y categories express interest in conducting insurance purchases electronically, the intellectual capital provided by the expert insurance agents and underwriters are an integral part of the insurance transaction—especially in the property and casualty lines of business.
Bernie G. Heinze is the executive director of the American Association of Managing General Agents. He can be reached at bernie.heinze@ aamga.org or at (610) 225-2363.