Tech Slowdown Is Not Halting IT Projects, Study Finds
Despite a slowdown in the technology market, insurers and financial services companies, among others, are advancing their technological projects, a recent study reports.
According to results posted in “Digital Strategies Survey 2001,” a survey conducted by DiamondCluster International Inc., Chicago, 150 business executives from a range of industries remain optimistic toward development of Internet projects. Eighteen financial services firms and two insurers were involved in the DiamondCluster survey.
Kenton Morris, principal and leader of the survey, says 61% of financial services executives with ties to the insurance industry believe e-commerce will have a big impact on their businesses.
“This says that they are recognizing the critical [nature] of the Internet,” Morris says.
Joan Lufrano, a representative also with DiamondCluster, agrees.
“Technology and the Internet are really the mainstream. In our initial study, they were peripheral. But now technology is really recognized by everyone,” she says.
Figures in the report show that 75% of senior executives say Internet technologies have become vital to their core business, while 48% believe the Web greatly affects corporate purchasing.
Forty-six percent expect the Internet to have a major impact on customer services and 30% see the Web having a major impact on helping firms reach new markets, the study says.
While business leaders from a range of large firms with at least $1 billion in annual revenue believe Web-based initiatives will ultimately improve their business operations, few have succeeded in maximizing their Internet capabilities in key areas such as customer service, the study revealed.
Of those surveyed, 15% report being very successful at handling customer service requests electronically, but less than 10% report success in selling direct to customers online.
Other results show respondents believe that 12% of all annual business sales will be conducted online in the next two years.
Still other results say e-business operations have moved from the back-office to mainstream business operations.
Figures posted in the report note that 30% of all respondents have fully integrated their Internet divisions with core business operations and 65% plan to reach that level of integration in the next 24 months.
State Farm, Bloomington, Ill., has made its Web functions a key part of its mainstream business, according to a company representative.
“It is pretty much an integrated enterprise,” says Zoe Yonker, a State Farm spokeswoman.
“The people that handle Internet operations are fully integrated into the companys core business,” she adds.
In line with the study, Yonker says a key benefit in providing an online service is providing improved customer service.
“It has helped our customer relations and also helped consumers, because they can research their policies online,” she says.
In response to the survey, Yonker agrees that Internet usage has become a main component of todays business model, but discounts optimistic forecasts that see the Web producing 12% of annual sales.
“The studies we have seen on insurance so far say online insurers have sold only about 1 or 2% of the products online,” Yonker notes, citing statistics compiled by Forrester Research Group, Cambridge, Mass.
Chuck Kavitsky, senior vice president and chief marketing officer at Minneapolis-based Allianz Life Insurance of North America, agrees with the survey that the Internets role has had a significant impact on the insurance industry.
“We are using the Internet to get closer to our customers. We will make choices available to customers who want to go online,” Kavitsky says.
A key advantage in providing a Web service is the ability to draw traffic away from insurer call centers overloaded with policy questions that could be answered with an online brochure, according to Kavitsky.
The insurer handles up to 8,500 calls per week on inquires related to fixed annuities, Kavitsky says, adding that a number of common questions can be answered online.
Allianz sells its insurance products exclusively through independent agents and has no plans to use the Internet to pursue direct marketing opportunities, Kavitsky notes.
Kavitsky strongly supports selling insurance products via an agent as opposed to an online service and asserted that companies who pursue this direction may disrupt ties to the agent community.
“The companies that move in that direction are going to break that relationship with their agents,” he says.
Indeed, the Internet has permanently transformed the traditional business model, but insurers, in response to weakened market conditions, are proceeding with caution, observes analyst Judy Johnson, vice president of insurance information strategies at Meta Group in Stamford, Conn.
“Everybody is moving more cautiously in terms of costs,” she says.
Large enterprise-sized projects are on hold, Johnson says, and insurers are focusing more on developing a “business case,” a well-defined purpose, before embarking on Web-based projects.
“Insurers are asking the question: Why are we doing this and when are we going to see results?” she says.
During the late-1990s, a period marked by widespread enthusiasm over the Internet, several insurers embarked on Web-based initiatives in response to their competitors efforts, rather than their own immediate need, Johnson points out.
A lack of genuine need for those projects prevented insurers from obtaining an adequate return on their investment, she notes.
“They failed because there was no business case,” she says.
Citing information shared by one of her clients, Johnson says 75% of CRM (customer relationship management) projects fail because there is no clear idea of why such an involved project is needed.
But as high expenses, coupled with a lull in the tech market, slow Web development throughout the industry, insurers are also grappling with how to effectively build Web offerings in line with offline services, according to Johnson.
“Insurers are trying to apply the same kind of underwriting metrics to Web-based initiatives,” she says.
“They are still learning how to approach the Internet,” she adds.
Asked if selling insurance policies online may expose the company to a rise in rating errors, Yonker confirms Johnsons observations and says State Farm underwriters will take a wait-and-see approach.
“We have never done this before, so the information is not yet available,” she notes.
For now, current underwriting strategies will be applied and modified as needed, Yonker says.
Johnson, however, agrees with the study findings that indicate more Web operations are finding their way into insurers core business plans.
She says it is common for new projects, like offering insurance polices online, to start in a back-office capacity.
Typically, Johnson says, the mission of modern technology is to find its way into a companys core business strategy.
“The trend is to get e-business into the mainstream from an IT perspective,” she explains.
One of the promises of the Internet is that it will help a company save on communications costs, Johnson says.
“Technology, like XML, is being used to streamline costs,” she says.
According to Johnson, industry research concludes that the longer it takes to process an insurance policy, the greater the odds the sale will not be completed. But employing Internet strategies will speed up this process, she says.
Johnson agrees with study findings that assert the importance of the Internet in the business community, but also says a 12% forecast for all business sales was too optimistic for the insurance industry.
Robert W. Mitchell is a staff writer for NUs Property & Casualty/Risk & Benefits Management Edition.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.