Keith Rogers looks at how insurers' IT solutions need to shift towards a more flexible, internet-based approach in order to be compatible with their business needs

Fred Matteson, former chief information officer at US property and casualty insurer Fireman's Fund, is under no illusions about the mismatch between insurers' business needs and the systems and processes they

typically rely on. Business, he points out, doesn't happen sequentially - but that's how technology people think. You establish a way of working, IT people build the necessary infrastructure to support it, "and then we pour cement on it". So much for business flexibility.

Matteson was speaking last summer as he unveiled the latest efforts in a multi-million dollar initiative at the company designed to tackle a broad range of common technology and business challenges. Across the global insurance industry, companies like Fireman's Fund have been looking for ways to manage billing inquiries more efficiently, open up their quotation systems to agents, and in some cases, bring new products to market much more quickly.

In an ideal world, insurers would design new schemes on a 'pick list' basis, taking the best parts of their existing policies and pulling together all the knowledge they've accumulated in marketing and sales. Those who deal through intermediaries would do so electronically: those who sell direct would have all the customer information they needed at their fingertips. In short, every player would behave like a highly responsive, automated business.

Back in the real world, however, life is still very different. Webster Buchanan Research recently carried out interviews with senior executives at a number of leading insurers, predominantly in the UK, to discuss their chief business pain points (Customer Management in the Insurance Sector: the Insiders' Perspective). The research, carried out in association with Onyx Software, indicated that insurers are struggling with a wide range of challenges, stretching from scheme management to customer retention. Product design still takes longer than it should.

Handling customer and broker inquiries over the internet is still beset by cultural issues and the complexity of automating risk. Cross-selling is hampered by the lack of central customer information. Even getting customers live once they've signed up to a policy can be problematic, and handling non-standard service inquiries is still a major challenge for many.

The roots of many of these problems are deep-seated, and lie in a combination of organisational and technology-related problems. To begin with, the insurance sector takes more of an opportunistic approach to business development than many other industries, and is prone to building IT systems to react to new commercial developments.

That works in the short-term, but as the business moves on and de-emphasises particular areas, those IT systems still need to be maintained. The result is a mish-mash of software applications, many of them based on very specialist technologies, which are costly to run. If the bulk of your budget is being spent on maintaining software, there's less money available to meet your new business needs.

Incompatible systems
This problem is compounded across the financial services sector, where widespread merger and acquisition (M&A) activity has left many organisations with a host of different IT systems, many of which are incompatible and unable to connect to one another.

Second, there are deep-seated organisational issues. For all their protestations that the customer comes first, many insurance companies are still structured around the products they sell rather than the clients who pay the bills.

As a result, information tends to be stored according to policy, not according to customer - which means that you can have four or five different records for the same customer in different business units. That's a big problem if you're trying to upsell an existing customer to another product.

The third problem speaks to the 'cement' challenges identified by Matteson. The business processes insurers rely on - like most other organisations - are often a big constraint on business flexibility. Rather than being mapped out strategically for maximum efficiency, processes tend to evolve over time and often feature 'short-term' fixes that become permanent by default.

But changing them can be hard. Not only does it require alterations to the software that supports them, there are also organisational challenges when companies try to drive change through. As one respondent to Webster Buchanan's research report indicated, business hierarchies and structures tend to run vertically, but processes cut horizontally across different units - which leaves you struggling to work out who actually 'owns' which part of what process.

These issues may sound dry, but they have a fundamental impact on the way that insurers operate. Take the 'onboarding' process, for example, which covers the period from when a policy is sold to a customer going live. This usually consists of a large number of steps, some of them involving external organisations such as vehicle licensing bodies for automotive insurance or doctors for medical.

Additional information
Delays in going live can be frustrating for customers - yet in the life insurance sector, some experts argue that for every 100 applications that are made, only 30 can be implemented immediately. The others require follow-ups for additional information or to kick-off underwriting processes.

Managing customer service inquiries is another challenge. Most insurers interviewed by Webster Buchanan Research have automated simple customer-facing processes, such as handling a change of address.

But more complicated queries typically go through a call centre and then need to be escalated via an appropriate internal expert.

Managing that escalation process - from knowing who to route queries to, to ensuring that problems are fully resolved - can be complicated.

The IT industry has long been aware of these problems, and there have been numerous initiatives to tackle them. Customer relationship management (CRM) software applications, for example, handle many of the information management challenges, collating data so that all relevant customer information is visible in one place. Implementing this kind of software application isn't always simple, however, and its effectiveness partly depends on how easily it can be integrated with existing IT systems.

Some CRM vendors have also set out to tackle the process management issues associated with customer or intermediary management, providing tools that make it easier for business people to adapt their processes as their priorities change.

Again, there are inherent challenges with this approach - for example, it may trigger debate about whether the IT department or the business controls the process - but it can help overcome core challenges in areas such as onboarding and customer service.

This kind of approach is part of a bigger industry shift towards a more flexible, internet-based approach to IT, referred to as service-oriented architecture (SOA).

Like much in the IT arena, the hype around SOA has sometimes exceeded the reality, but in broad terms it provides a cheaper and quicker way of connecting together incompatible systems and processes.

Fireman's Fund is recognised as one of the pioneers in this area, having embarked on a ten-year, $94m contract with IBM to cut the number of applications it runs and better manage its software environment. Working with IBM partners such as Webify Solutions, an insurance specialist focusing on SOA, it has given external agents direct access to a number of its software applications including its billing and quotation systems.

While it has talked about potential savings of $200m from more efficient IT management, some of the intangible business benefits generated by this kind of business flexibility may ultimately be even more significant. IT