Companies need to move beyond pretty websites into substance
A couple of months ago we talked here about the coming consolidation of insurance companies. But instead of constricting markets for agents and brokers, you’ll have more markets than ever. Those ridiculous minimum-premium rules will be replaced by technology that allows companies and MGAs to distribute wider and with greater efficiencies than before.
But why do insurance companies lag the financial services industry in creating pervasive real-time technology solutions—à la Schwab or Merrill Lynch—that make sense for their distributors as well as consumers? The short answer is they’re paralyzed. And if I’m a CEO, it’s painful.
They can’t afford it
Companies can build web systems and servers to provide pretty interfaces to the consumer. That’s the easy part. The expensive and hard part is the back-end processing to produce real-time rates and information.
“With very rare exceptions, insurance policies today are processed in a batch, store and forward mode,” said Chip Lawson, insurance industry specialist with systems integrator CommerceQuest.
“Companies need to get to real-time applications. For a big carrier, it takes tens of millions of dollars to do that.” Unfortunately they’re barely making enough money today to maintain their existing technology, including expensive payroll to work on
e-business.
“What is required is as much business discipline as technology investment,” said Ted Devine, a partner who heads North American insurance e-commerce at McKinsey.
“It’s about understanding the customer and making the right investment because you can’t invest in everything at once. Maybe it’s more on the back end. You have to really think that through and make some hard economic decisions. Because web enabling for web-enabling’s sake is just going to add cost.”
They don’t know how to do it
Let’s assume companies find the right money to invest in the right technology. It isn’t just a matter of ordering hardware from IBM and software from Microsoft. There’s a little problem called integration: They have islands of data that don’t talk with each other.
“So many [companies] have created these systems where one little system does this little policy and this one does that,” Lawson said. “There’s no integration. It’s just a fiasco.”
“Insurance companies are data rich and information poor,” he added. “They have such a wealth of information but have no clue where it is or how to use it.”
Solving these integration issues isn’t easy. “This is something that has to be installed and maintained by a professional,” said Tim Higham, president of iNEX, an e-business consultancy. “There is no plug-and-play data integration product, period. It’s extremely complicated because these systems demand a lot of scripting and personalization when they come out of the box for your company.”
Furthermore, insurance company systems were created in an environment of internal politics and strategic business units. The commercial lines guy didn’t want to talk to the personal lines guy and vice versa. Communication was done on a piecemeal basis if it was done at all.
Are consumers demanding it?
Consumers take their insurance seriously. But it doesn’t mean they’re inspired in droves to buy in exciting new ways. (For now, anyway.)
They’re not thinking outside the box
Those smart people at McKinsey have new ideas for insurance. “We encourage our clients to think in terms of two different buckets,” said Marc Ricks, who spoke at the ACORD Technology Conference in May. “Web-enabling the business—servicing and selling—is one bucket. But not too far in the future, it’ll be just a ticket to play. It’ll be like having a call center. The market won’t attach high value to simply selling insurance on the Internet.
“The other bucket is the real opportunity in insurance to create a new business model —like a Priceline or e-Bay,” Ricks said. So what has he seen so far? “Nothing to write home about yet, but people are thinking about it.”
They’re afraid to make a mistake
Insurance companies don’t want to be laughed at by their peers if a direct-to-consumer initiative fails. “Insurance companies have agents to deal with,” Higham said. “They’re almost an extension of an employee—you have to teach them how to use the system. Insurance isn’t online banking or brokerage—where you have simple numbers being added or subtracted. Insurance is a process. A lot of individuals have to be shown how to use the process for the customer’s benefit. It’s complex.”
Faced with all these daunting decisions and investments, you’d think p/c carrier CEOs would be angling for merger or acquisition deals left and right. And depressed stock prices means those deals should be even easier.
So, why so little action? Look at the mergers that have been made already. Obviously, the buyer rarely wins. But I do believe more company pruning is on the way. The lower-performing companies will be under intense pressure.
Site Seeing: People make fun of those hard-working and analytical actuaries, but this is a serious profession, and without them we wouldn’t have an industry in the first place. So go to www.actuary.com to learn more about their challenges. The other one is www.actuarialjokes.com.
Peter van Aartrijk, a 20-year insurance industry veteran, owns a communications firm specializing in the independent agent distribution channel. To comment on this column, email: ijwest@insurancejournal.com
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