Unlocking ‘Hidden Value For The Industry
During the past five years, life insurance companies have faced ever-increasing pressure to focus on and improve their core operations.
Most insurance organizations have already deployed traditional measures to improve earnings, including work force reductions, re-organization, focus on core product lines and the deployment of “smart management” techniques.
The September 11 events, uncertain financial markets, new market entrants, pricing pressure and expectations generated by new acquisitions have further exacerbated this need for profitability improvement. While the “safe harbor” supported by the bull market economy of the late 90s may return, new actions are required to achieve expectations for improved financial and corporate performance.
There is a convergence of situations such that it appears “we have done everything we can,” yet there is a compelling business need to do more. So what can insurers focus on to create new value? What tools are available to help? Why havent insurers more quickly adopted technology solutions to help realize cost savings? These questions have the attention of all industry stakeholders.
Skepticism has been the order of the day from the first emergence of e-commerce solutions within insurance. Doubt from the industry resulted from the very stance of the emerging players. These early entrants claimed that success was assured because of inherent weaknesses at the core of the life insurance industry. When these early models failed to produce promised results, the initial skepticism was resoundingly validated.
Suggested reasons for the failures included: the idea that early entrants lacked strong parents and lacked focus; the cultural conflict that existed between new players and their traditional insurance partners, and complaints that integration was too difficult between the new technology and legacy systems.
However, the primary cause for failure of these early models is that they did not address the multiple layers of complexity inherent in the life business. Ironically, this level of complexity is exactly the environment in which properly deployed Web-based technologies can have the most impact.
There are (at least) three levels of complexity to the life insurance businesscomplex consumer interaction; high volume, multi-point data collection and complex, non-standardized risk assessment. Early e-commerce models focused primarily on complex consumer interaction, but the real power of Internet technology lies in its ability to address the remaining two levels of complexity.
The ability of the new technology to easily accommodate high-volume data input from multiple sourcesthen aggregate and process ithas significant implications to the traditional way in which new business is processed and underwritten.
The collection of data from many different sources and the ultimate assessment of this data have historically been mutually independent processes. However, the emergence of new technology tools is, for the first time, enabling the integration of these disparate activities.
Introducing new technology in these areas can increase sales productivity by streamlining existing procedures, increasing speed-to-issue and improving case management. Lower costs and improved margins can be realized by applying technology solutions to reduce application errors, eliminate redundant and repetitive tasks and enhance underwriter productivity.
While the adoption of technology solutions by traditional sales channels is considered to be a challenge for any new initiative, the value proposition to the producer has never been stronger.
Current solutions offer the ability to initiate a case via a Web browser or paper application, select one or several carriers with whom to proceed and choose one of several methods to collect underwriting and financial information. Insurers can then utilize a reflexive question set with database links and edit checks to produce applications forms, automatically determine and order underwriting requirements and dynamically track the status of all cases and requirements in real time.
This functionality offers several benefits. It drives down expenses for the producer, eliminates the need to keep track of all the required forms, enables the submission of cases to one or more carriers through a single collection process and eliminates the need to manually track cases and requirements. Dramatically increased speed of processing improves placement rates, thereby resulting in more and faster commission checks.
Web-based technology can assist in all aspects of comprehensive gathering of the information underwriters and producers need to get cases issued. This includes drill down questioning methodologies, real time database links, automatic edit checks, etc. These tools allow for incremental, more accurate and more complete information to be initially gathered. In essence, this is the codification of the discovery process to ensure as much evidence as possible is collected on the first pass, thereby making the process much more efficient.
Underwriting rules technology can also support the decision process. First, it allows all (even complex) cases to be “cleared” for review by an underwriter. This eliminates the need for an underwriter to review clean data and formula driven information. Instead, it allows the underwriter to focus on case complexities requiring human assessment. Second, for simpler and cleaner cases, the rules engine can produce a recommended risk assessment for the case. Both featurescase clearing and full risk assessmentenhance underwriter productivity.
There will always be a percentage of business that does not fit the mold. New technologies do not hinder producers and underwriters from interacting, reviewing cases and discussing decisions. Nor does the technology displace the critical need for underwriters to examine and formulate opinions based on complex and subtle case criteria.
The new solutions enable both the art and science of underwriting. By codifying both, underwriting becomes more efficient. This helps underwriters get to final decisions more quickly, driving costs down for both carriers and producers and allowing humans to focus on complex cases and situations.
One wonders what chance new technology solutions have within the currently difficult climate, where skepticism abounds, external markets are uncertain and the industry continues to be harassed as conservative and slow moving. In fact, increased demand for improving core business results has combined with an improving attitude by carriers and distributors for these projects.
A strong economic return exists for insurers and distributors with the vision, initiative and follow-through to deploy new technology solutions. These solutions can help insurers reach the next level of operational excellence, a level unreachable through already deployed traditional measures.
To make that happen, the following points should be kept in mind.
The demise of first generation Internet insurance players is not a proxy for the power of real technology solutions.
Challenges inherent to industry complexity and processes are well aligned with the real power of the technology.
The solutions exist.
The climate is right.
The business case can be compellingly made.
The model that will succeed is the one that enhances all aspects of the existing application and underwriting process.
Pick your partners carefully. If a partner cannot help make the business case, do not work with that partner.
Harnessing the power of technology demands an integrated business process to fully enjoy improved financial performance. When weighed against the cost of development, fully executed and successful programs will provide attractive returns on investment for the insurance industry. The power of this technology can unlock hidden value, spurring the revenue and bottom line return needed to contribute to the economic well being of the industry.
is managing director, United States, for Toronto-based Worldinsure. He can be reached at firstname.lastname@example.org
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 26, 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.