insurance technology outlook

December 2009/January 2010 Business Innovation Powered By Technology

$7.00www.insurancetech.com

GROWTH IS BACK ON THEAGENDA FOR 2010, ANDINSURERS’ TECHNOLOGYBUDGETS AND PLANSREFLECT THE SHIFT. TOLEARN MORE ABOUT THE COMING YEAR’S HOTTESTSOLUTIONS, STRATEGIES,PLAYERS AND TRENDS,TURN TO PAGE 14.

INSURANCE TECHNOLOGY

OUTLOOKINSURANCE TECHNOLOGY

OUTLOOK

BANCASSURANCE: IS THE END NEAR? P. 7

CALL CENTERS GETMORE RESPONSIVE P. 12

USING ANALYTICS TO FIGHT FRAUD P. 25

14 IT to the RescueRather than slash IT spending in the face of ongoing economic

uncertainty, insurers are investing in technology as a way out

of the current business slump. IT organizations are focused on

supporting competitive distinction through superior under-

writing, pricing and customer-facing capabilities.

16 A New Strategic DirectionIf there is a positive to the challenges faced by the insurance

industry in 2009, it’s that new technology approaches have

enjoyed some validation. Members of I&T’s Reader Advisory

Board offer insight into their organizations’ IT strategies for 2010.

18 4 Hot TechnologiesWhile insurers often are cautious in their adoption of emerging

technologies, carriers are investing in solutions that are just too

transformative to ignore, including cloud computing, mobile

capabilities, risk assessment solutions and social media.

22 Regulation’s Best Intentions Complying with inevitable regulatory change will be expensive,

notes Deloitte’s Howard Mills. But the unintended conse-

quences of new regulation could be the most painful, he says.

23 10 to Watch in 2010I&T’s editors offer some predictions on the coming year’s

insurance technology newsmakers.

December 2009/January 2010 insurancetech.com

UPDATE

7 The End of Bancassurance?Some experts believe the recent news

that ING will divest its insurance

operations is the beginning of the end

for the bancassurance business model.

8 Bulletproof CSRsTo improve call handling and customer

service representative training, Farmers

Insurance replaced a complex legacy first

notice of loss systems environment with

HERO, a proprietary platform that pres-

ents CSRs with an easy-to-use front end.

9 A Better Bond PlatformTo address the fragmented and techno-

logically antiquated surety bond market,

Main Street America Group developed a

new platform that creates labor efficien-

cies for distributors, driving a 25 percent

annual increase in new business.


OUTLOOKINSURANCE TECHNOLOGY

OUTLOOK

COVER STORYCOVER STORY

FEATURE

25 Uncovering Hidden DangerAs fraud schemes grow ever more

sophisticated, insurers are employing

data mining and predictive analytics tech-

nologies in increasingly innovative ways

to unearth suspicious data patterns and

improve the claims investigation process.

I&T EXECUTIVE SUMMIT

29 Leading Beyond the CrisisMany carriers are busy tackling concerns

about systems integration, customer

service and project prioritization, but

attendees at I&T’s 2009 Executive Summit

also debated strategies to drive growth.

2 December 2009/January 2010 www.insurancetech.com


MOBILE

Introducing insurancetech.com forYour Mobile Device Now you can get all of Insurance &Technology’s unmatched coverage ofthe insurance technology sector in thepalm of your hand. Point your mobilebrowser to insurancetech.com and you’ll receive all ofour online content automatically optimized for yourhandheld device.

EXCLUSIVE EDITORIAL REPORT

Technology Leadership In Insurance: I&T’s Elite CIOsIf the familiar adage, “What doesn’t killus makes us stronger,” is true, then the executives whocomprise I&T’s Elite 8 insurance technology executivesmust have incredible powers. The executives profiled inthis special report are rising to the challenges presentedby tight budgets, an unsettled regulatory environment,and untested new channels to seize opportunity amidcrisis. reports.insurancetech.com/elite8

ON-DEMAND WEBCASTS

Optimizing Customer ServiceWith Content ManagementA seamless claims experience can lead to increased customer loyalty. But poor claims handling can drive customers to switch carriers. Often, customer serviceproblems are rooted in poorly designed claims process-es. In this free, one-hour webcast, learn how to leveragea content management solution to streamline claimsprocesses and easily store, access and retrieve informa-tion, leading to better cycle times and more-satisfied customers. For more information on this andother Insurance & Technology on-demand Web events,visit insurancetech.com/on-demand.

BLOGS

AIG’s BenmoscheThreatens to QuitFollowing recent reports that AIG CEOBob Benmosche threatened to quitbecause of increasing governmentconstraints (namely compensation lim-its), some questioned whether the threat merely was amotivational tactic. But, “Surely we can appreciate thathe is earnestly worried about the effects the policy mayhave on AIG’s chances for success,” writes ExecutiveEditor Anthony O’Donnell in a recent blog post. To readmore of O’Donnell’s comments on Benmosche’s intentions, visit insurancetech.com/blog/benmosche.

Bill Bloom, EVP – InsuranceOperations and CIO, Travelers

Russ Bostick, EVP, Technologyand Operations, Conseco

Cathy Brune, SVP, CIO, Allstate

Bob Fullington, President,LOTSolutions; Executive VP,Fortegra Financial

Bruce Goodman, SVP,Chief Service and Information Officer, Humana

Barbara Koster, CIO,Prudential Financial

Srinivas Koushik, CIO,Nationwide

Craig Lowenthal, EVP, CIO,NYMAGIC

Scott McKay, SVP, CIO,Genworth Financial

Rick Roy, CIO,CUNA Mutual

Piyush Singh, SVP, CIO,Great American Insurance

Greg Tranter, SVP, CIO, COO,The Hanover Insurance Group

Insurance & Technology (ISSN# 1054-0733) is published 8 times per year (Feb./March,April/May, Survival Guide,June/July, Aug./Sept., October, Elite 8, Dec./Jan.) by United Business Media LLC, 600 Community Drive,Manhasset, NY 11030 (516) 562-5000. All rights reserved. Subscription information, address changes and single-issue requests: $65 per year in the US, $85 in Canada, $105 elsewhere (payable in US funds). Single issuerequests, write to: Insurance & Technology, P.O. Box 1053, Skokie, IL 60076-8053, or call (1-800) 255-2824,(847) 647-2105, or e-mail to [email protected]. Editorial Offices: 11 W. 19th Street, 3rd Fl., New York, NY 10011;(212) 600-3000. POSTMASTER: Send changes of address to Insurance & Technology, P.O. Box 1053, Skokie, IL60076-8053. Periodicals postage paid at Manhasset, NY, and additional mailing offices. Registered for GST asUnited Business Media LLC, GST No. R13288078, Customer No. 2116057,Agreement No. 40011901. Copyright2000 United Business Media LLC. “Bulk mail enclosed, standard rate permit #476 paid at Ithaca, NY.” Returnundeliverable Canadian addresses to Bleuchip International, P.O. Box 255542, London, ON N6C 6B2.

WEB 2.0 WATCH

10 Insurers Along for Twitter Ride Progressive and other carriers are learning on the

fly as they seek to leverage Twitter and other social

media to engage customers.

BUSINESS INTELLIGENCE WATCH

11 Building an IntelligentCase for BIMontana State Fund CIO Al

Parisian shares best practices for

building a business case for invest-

ment in business intelligence.

CASE STUDY: FOCUS ON CALL CENTERS

12 Listening to Callers’ PainBlueCross BlueShield of Tennessee taps speech

analytics to identify service issues.

13 Calling SuccessHomesite Insurance achieves efficiencies and sales

goals by automating call center operations.

5 From the Editor

31 Names in the NewsRecently appointed CNA CIO Ray Oral is directing

increased IT spending to align IT and the business.

insurancetech.com

ReaderAdvisoryBoard

Al Parisian

Visit us at www.teamquest.com/insuranceto discover the TeamQuest difference.

Phone: 800-551-8326 Optimizing IT Performance

Downtime Affecting Your Business?

Copyright © 2009. TeamQuest Corporation. All Rights Reserved. TeamQuest and the TeamQuest logo are registered trademarks in the US, EU and elsewhere.

In today's competitive insurance marketplace, instant access to customer records and claims-relatedtransactions is critical. System downtime and disruptions across the enterprise can significantly affectyour bottom line. Now there's an easier way to control your IT investments without going over budgetor sacrificing service level agreements. TeamQuest Performance and Capacity Management softwareenables you to plan, manage, and optimize your IT infrastructure and operations. We help your ITdepartment do more with less, which translates to significant cost-savings.

Yours Theirs

FromTheEditor


Crashing The Party

HE UNSANCTIONED and high-profile attendance by realitystar wannabes Tareq and Michaele Salahi at the White Housestate dinner in November has provided grist for late nightcomedians, morning talk shows and disapproving commenta-

tors. But the more I thought about it (although I really tried to avoid think-ing about the Salahis), it occurred to me that this incident also providesinsurance and financial services executives with one more object lessonin a year full of cautionary tales, warnings and recriminations.

Although at press time the Salahis were contending that they hadbeen invited to the state dinner honoring Indian Prime Minister Dr.Manmohan Singh, their names did not appear on the guest list beingchecked by a Secret Service screener. Rather than challenge or refusethem entrance, the screener passed them on to the next station, assum-ing someone else would be able to verify their identities and creden-

tials. The rest of the story is paparazzi history. In acheesy way, the tale also illustrates the challengesinsurers face every day as they strive to gain moreinsight about their customers, verify the identitiesof everyone seeking access to company and clientinformation, secure the privacy of employees andcustomers, and provide an appropriate level oftransparency and interaction — and to do so cost-effectively, efficiently and consistently.

It seems like such a simple thing: Someone’sname does or does not show up on a list ofapproved attendees or customers, and they are

either granted entry or turned away. The policies and procedures for han-dling these situations should be clear, well-communicated and -under-stood, and rigidly enforced. It shouldn’t be any different whether itinvolves protecting customer data or protecting the president and firstlady. But of course that is easier said than done, especially in today’s opensource, socially networked, boundary-less world. (And how fitting thatthe Salahis proudly displayed evidence of their exploits on Facebook.)

Today more than ever before, insurers are striving to balance require-ments for security and fraud prevention with customer, partner andemployee expectations for open access, speed and customization. TheSalahi debacle shows just how tricky — and risky — this balancing actcan be. Although we should all be glad that this is one failure that can’tbe blamed on the financial services industry, it underscores that “KnowYour Customer” isn’t just a regulation — it has to be a way of life.

Wishing you a secure, interactive and insightful 2010!

email Katherine Burger, Editorial Director [email protected]

T

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Beforeannouncingthat itwoulddivest itsinsuranceoperations,Amsterdam-based ING(head-quarterspicturedabove) wasthe arche-type of the banc-assurancebusinessmodel.

N LATE OCTOBER Amsterdam-based financial services giant INGannounced that it would divest itsinsurance operations. The moveeffectively set ING — in many waysthe archetype of the bancassurance

(banking-insurance hybrid) business model — downa path that leads out of the bancassurance market.

ING CEO Jan Hommen said that splitting the com-pany’s insurance and banking operations was not adecision ING took lightly. “The combination providedus with advantages of scale, capital efficiency and earn-ings stability through a diversified portfolio of business-es,” he said in a release. “However, the financial crisishas diminished these benefits. Now, the widespreaddemand for greater simplicity, reliability and trans-parency has made a split the optimal course of action.”

Of course in many ways it wasn’t ING’s decision at all.The split was part of a restructuring agreement amongING (US$1.8 trillion), the Dutch government and theEuropean Commission (EC) under which the companyplans to repay a US$14.9 billion bailout. All of ING’sinsurance and investment management operations even-tually will be divested as part of the required restructur-ing plan, which was approved in mid-November.

“Over the last six months, we have worked tireless-ly — both inside ING and with the Dutch governmentand the European Commission — to devise a plan thatwill enable us to pay back the Dutch State, address theEC’s requirements for viability and fair competition,and return our focus to the business and what mattersmost to our customers,” Hommen stated in the release

The Bell Tolls for Bancassurance?Some observers have suggested that ING’s plan marksthe beginning of the end for the bancassurance move-ment. “In retrospect, you have to wonder whether allthe reasons used to flog the hybrid idea as the epito-me of capital and consumer efficiency were bogus,”wrote Eric Reguly in the Canadian newspaper TheGlobe and Mail. “Maybe they were just anotherexcuse for egomaniac bank and insurance bosses tosuper-size their companies and their pay packages.”

But while some aspects of bancassurance surely willlose popularity, the concept as a whole may live on. Infact, to some in the industry, ING’s divestiture of its insur-ance business isn’t the most sensible move. Ellen Carney,a Forrester Research senior analyst who covers both thebanking and insurance industries, says she understandsthe move from a “too big to fail” perspective, but notfrom a value perspective. “The insurance business wasactually showing better performance,” she explains.

Nonetheless Carney acknowledges that the bancas-surance model never took off in North America as itdid in Europe. The bancassurance challenge is, in part,a CRM issue, she contends. “Here in the U.S. market,you have a relationship with your insurance agent andit’s a different relationship than what you have withyour bank,” Carney says. “This might have been justtoo big a leap for a lot of bank folks to be able to sell.”

That said, Carney stresses that the banking-insur-ance hybrid concept could be a valuable business modelif banks — especially community banks — took advan-tage of their high levels of customer engagement to cap-italize on the cross-sell and up-sell opportunities. “If youthink about the relationship that we should have withour banks, as our financial advisers, wouldn’t it makeperfect sense then to be able to buy an insurance pack-age that protects our financial assets?” she poses. ■

■ By Nathan Conz ■

WITH ING FORCED TO DIVEST ITS INSURANCE OPERATIONS, THE LONG-TERM VIABILITY OF THE BANCASSURANCE MODEL HAS BEEN BROUGHT INTO QUESTION.

I

DeconstructINGBancassurance

NEWS ANALYSISUpdate


ARMERS INSURANCE GROUP has replaced a complex legacyfirst notice of loss (FNOL) systems environment with HERO, aproprietary application that provides customer service represen-tatives (CSRs) with an easy-to-use front end. HERO presents

information and logically sequenced questions to guide customers throughthe FNOL process, says Farmers VP of claims applications Shohreh Abedi,who reports that the new system has resulted in shortened call times, higherservice scores, greater call center ramp-up ability and reduced training costs.

HERO is part of a larger business and technology architectural initiativedesigned to decouple capabilities within an enterprise services-orientedarchitecture, according Abedi. “We wanted centralized capabilities and to beable to rapidly leverage them rather than face multiple months of develop-ment for a single feature,” she explains. “The HERO contact center piece putsall claims first notices and status calls on a common platform so that CSRsonly have to train on one system, regardless of the back-end ... system.”

The HERO initiative kicked off at the end of 2007 and entered a pilot inearly 2009. The application was built using Pegasystems’ (Cambridge,Mass.) business process management software and services, with integra-tion work from Capgemini (New York), Abedi relates. Rollout for auto andworkers’ compensation lines was completed in September.

According to Abedi, Los Angeles-based Farmers, a subsidiary of Zurich-based Zurich Financial Services (US$32.4 billion in annual revenue), departedfrom the typical development model whereby the business side submitsrequirements and IT reengages the business only after building the solution.

“The business people ... spent eight months with IT atour development center,” she says. “Throughout thewhole development phase, they could see what theywere asking for in the presentation layer, which helpedto minimize the surprise at the end.”

Abedi characterizes the significance of theHERO application as its potential for use acrossmultiple lines of business. “The power of the tool isthe scripting logic enabled by the Pegasystems BPMcapabilities,” she says. “HERO presents predefinedquestions in drop-down menus, such that the CSRsdon’t have to remember what to ask,” Abediexplains. “The answers to questions lead to logical-ly dependent subsequent questions and processes.It will present the CSRs with different vendor serv-ices, rental car services if appropriate, repair shops,or with total loss activities.”

The HERO Pegasystems capabilities are inte-grated with back-end applications, including claimsand some policy administration systems, throughan Oracle (Redwood Shores, Calif.) BEA AqualogicService Bus, Abedi relates. “Most of the informationis passed through our main [Oracle] Siebel claimssystem so that the adjusters in the field get every-thing they need,” she comments. “Basic informationis also retained within HERO, so if there is a subse-quent status call on a given claim, the CSR can pres-ent the current status of the claim. It is a true frontlayer of the main claims application.”

‘The Cadillac of Claims Reporting’Since going live HERO has driven up CSR qualityassurance scores in terms of both efficiency and filequality, according to Abedi. The application also hasdriven reductions in overall claims-handling andqueue times. Further, HERO facilitates rapid ramp-upin response to catastrophes. “I can easily ramp up towhat I need within a couple of hours rather than bestuck in queue for four hours trying to figure out howto put more bodies on the floor to answer calls,”Abedi says, adding that HERO also enables CSRs tobe trained in a single day rather than over a two-weekperiod, as was necessary with the legacy system.

The application’s ease of use, Abedi continues,drives both efficiency and CSR morale. She cites an e-mail from a trainee that ends with the statement, “Icannot say how grateful I am to every single develop-er, every dollar spent ... to make this remarkable prod-uct for us to use. … This is the Cadillac of claimsreporting; it is our future, and it is our HERO!”

Farmers currently is rolling out HERO for autobusiness related to its acquisition of 21st CenturyInsurance, and for additional lines of business, includ-ing property, specialty and commercial, Abedi notes. ■

Update

■ By Anthony O’Donnell ■

FARMERS’ HERO FIRST NOTICE OF LOSS APPLICATION FORCALL CENTER REPS LINKS TO BACK-OFFICE SYSTEMS,

RESULTING IN IMPROVED CALL HANDLING AND TRAINING.

Making HEROsof CSRs

F

CALL CENTER


For more on how carriers are leveraging technology to improve call center operations,see related case studies, page 12.


■ By Anthony O’Donnell ■

MAIN STREET AMERICA GROUP’S SURETY BOND PLATFORM DELIVERS EASE OF USE FOR AGENTSWRITING BOND BUSINESS, RESULTING IN A 25 PERCENT INCREASE IN NEW BUSINESS.

Build It and They Will Come

AIN STREET AMERICA Group’s newsurety bond platform has been a hugesuccess, the Jacksonville, Fla.-basedP&C carrier reports. Main Street America

Group (more than $800 million in annual premium)says the Main Street Station for Bonds platform,which was built in-house, has led to labor efficiencyfor both distributor customers and internal staff andhas resulted in an increase of new business of about25 percent annually since launching in January 2008.

The carrier embarked on development of the bondplatform in order to address the highly fragmentedand technologically antiquated surety bond market,according to Brian Beggs, VP and head of Main StreetAmerica Group’s surety bond business. “The users ofbonds are the customers of our [distributor] cus-tomers, who file the bonds with probate courts, feder-al or state courts, municipalities, or others,” heexplains. “The number of people requiring bondscould be in the hundreds of thousands and, theoreti-cally, each of them could have their own bond form.”

Many surety bonds still are composed on the flyand created or modified manually, resulting in ineffi-ciencies for both distributors and carriers, Beggsadds. The lack of standardized forms, combined withlow profit margins, has made the surety businessunfertile ground for the developers of software systems. Consequently, in order to attract suretybusiness through a superior process, Main StreetAmerica Group had to develop the Main StreetStation for Bonds platform internally with a blendedteam including resources from Keene, N.H.-basedComputer Solutions of Keene. “There isn’t a bigenough market to get most software companiesexcited about building a bond system,” Beggs notes.

Quicker and BetterIn late 2006 Main Street America Group began map-ping the surety bond submission process, includingboth internal and external workflows, Beggsrelates. “We looked at ways to utilize technology toeliminate steps and provide something quicker andbetter,” he says. “We wanted to make sure that evensomeone who didn’t have experience with bondscould still get through the process easily.”

The carrier built a rating engine and printingfunctionality, added data storage, and developedunderwriting logic, Beggs recalls. Key to the effort,

he says, was a library of forms designed usingexamples that the carrier had accumulated in itssurety business. “We built Adobe [San Jose, Calif.]PDF versions of all the forms that had coffee ringsand ink stains and then built rating and underwrit-ing rules to go behind them,” Beggs explains.

When the platform initially went live, MainStreet America’s distributor/customers were able toaccess about 2,000 forms within the library, using asearch engine that relies on keywords for jurisdic-tions and types. Currently the library containsabout 5,000 forms. “Once the form is chosen, thesystem automatically knows all the underwritingquestions that will need to be asked in order tocomplete the form,” Beggs comments. “It’s com-pletely automated, so all the agents need to know isthe name and address of their customer and someinformation for a few underwriting questions, andthe system will do the rest.”

Main Street America estimates that the formslibrary cuts in half the time it would take an agent tolocate and fill out a form manually. The automatedunderwriting process enables business to be issuedinstantaneously, according to Sharon Petrell, the car-rier’s IT program manager. “It could take days to get aresponse from an underwriter, whereas in this casethe agent is operating in a real-time environment,” shecomments. “It’s underwritten, the agent knows whatit’s going to cost, and they can print it on the spot.”

The ease provided by the new platform has beenfollowed by a 25 percent increase in new business andpremium, according to Beggs. The system also hasresulted in internal productivity gains of 35 percent to40 percent, he adds. “We took the time and labor sav-ings from automation as an opportunity to redirectour people into more-productive tasks,” Beggs says.“By shortening the timeline we have also increasedexpectations for us to be responsive to customers.”

Further building those expectations, since launch-ing the bond platform the carrier has worked toenable an automated renewal process. According toBeggs, the automated process is projected to bring a15 percent to 20 percent efficiency improvement dur-ing the 2010 renewal season. “The challenge was thatthe bonds that predated the launch of the systemlacked the data to drive an automated renewalprocess,” he explains. “We had to go back and convertand add data, which we finished a few months ago.” ■

M

“We wantedto make

sure thateven some-

one whodidn’t haveexperiencewith bonds

could stillget throughthe process

easily.”—BRIAN BEGGS,

MAIN STREET AMERICA GROUP

Update APPLICATION DEVELOPMENT

VEN RELATIVE TO otherWeb 2.0 entities, Twitter’s(San Francisco) star has risenquickly. The micro-blogging

site, which was launched in 2006, alreadyhas reached mainstream critical mass. Asa result, insurance companies have hadlittle time to identify the benefits a pres-ence on Twitter can offer and determinehow best to manage such a presence. Fortunately a few insurers identifiedTwitter’s potential early on (back in thehalcyon days of 2008) and are providingthe industry with some early examples ofhow carriers can leverage the social net-working site to engage prospects andexisting customers.

Mayfield Village, Ohio-basedProgressive ($13.6 billion in 2008 netwritten premium) is among a handful ofinsurers with an active presence onTwitter. Matt Lehman, Progressive’s Webexperience director, says the companystarted monitoring Twitter in earnest in2008. “It started to be a really effectivelistening mechanism for us — a reallyquick feedback loop and a really goodway to reach out to customers whentimeliness is of importance,” he relates.

Value Under PressureProgressive has demonstrated the validityof Twitter to the business by using it as acommunication channel during catastro-phe events, such as this past spring’sNorth Dakota floods and summer hail-storms in New Mexico, according toLehman. The company used Twitter todrive traffic to ProgressiveResponds.com,a Web site on which the carrier postsinformation as part of its response tocatastrophe events. “In a post-catastrophesituation, you might not have access to aPC, and your phone lines might be down,but Twitter is very accessible via a mobiledevice,” Lehman relates.

Leveraging Twitter has become a partof Progressive’s formalized social media

strategy, which essentiallytasks Lehman and his team tolisten and react to customersand prospects over varioussocial media channels andthen provide appropriateservice or acquisition efforts.“Whether it’s Facebook orTwitter or YouTube, we’regoing to execute the [social media] strategy slightly differently,” Lehmanexplains. “With Twitter, wehave clearly seen that it’s avery powerful real-time com-munications mechanism forreaching out to customers,listening to them and under-standing what they’re sayingabout Progressive and whatissues they’re having withour products and services,and also what they’re think-ing about ... competitors.”

The carrier first startedinteracting with other users on Twitter inearly 2009. At first, Lehman reports, theinteractions were limited to thankingindividuals who used Twitter to sharepositive experiences they had with thecarrier. Since then, however, Progressivehas expanded its presence, reaching outto Twitterers who complain about thecompany or inquire about its productsand services, he adds.

One key to Progressive’s Twitterstrategy appears to be personalization.When the carrier comes across positiveor negative tweets about Progressive, ittries to respond in a way that is specificto that customer’s comment. When thecomments involve a service issue,Progressive refers the customer to adedicated team within its call centerorganization to service the issue.

“It’s great to see the moment when acustomer didn’t exactly put an issue outfor us but we’re able to find it, react to it

and get them to the rightplace to get service, and thenhave them actually get theirissue resolved,” Lehmansays. “Customers go frompotentially being detractorsor having issues with aProgressive product to beingrecommenders of our prod-ucts because they’ve had apositive experience.”

Lehman’s team monitorsTwitter as a group and uses TweetDeck’s (London)third-party application tosearch Twitter in real time formentions of the company andto aggregate related searchesin a single feed. In additionthe company is consideringtapping applications such asCoTweet (San Francisco) andInvoke Media’s (Vancouver)HootSuite, which would helpProgressive manage its cor-

porate account, allowing multiple work-ers to access a single Twitter accountwhile enabling Progressive to audit whichworkers provide responses.

Engagement OpportunityWhile developing prospective customersis a part of the carrier’s social mediaapproach, Progressive has determinedthat Twitter is more useful for customerengagement, according to Lehman, whosays the insurer only directs Twitterusers to distribution channels whenthose individuals specifically ask forsuch information. The carrier’s efforts onFacebook and YouTube, however, fea-ture slightly more sales-related content.

“We generally see social media as areally good way to create good engage-ment with current customers,” Lehmansays. “Ultimately, this is a great way toprovide useful content. It’s not just asales tool.” ■


PROGRESSIVE AND OTHER INSURERS ARE LEARNING BY DOING ON SOCIAL MEDIA SITES SUCH AS TWITTER, WHERE OPPORTUNITIES FOR CUSTOMER ENGAGEMENT ABOUND.

Making Progress on Twitter

E


Web2.0Watch

“[Twitter provides] areally quick

feedback loopand a reallygood way toreach out tocustomers.”

—MATT LEHMAN,PROGRESSIVE

ow can a CIO justify investmentin business intelligence (BI)solutions in the current market?Al Parisian: [Business intelli-

gence] is about dramatically improving theway the company makes decisions, conductsbusiness and competes in the marketplace.You cannot look to BI to deliver an X percentsavings in processing costs or a Y percentincrease in productivity. BI is bigger than that.Compelling arguments depend on demon-strating the higher-level value of BI to theenterprise. The key is to show how BI capabil-ities directly and concretely improve the waythe organization makes critical decisions,improves operations and outsmarts competi-tors. That’s what will get the buy-in.

So how can CIOs get the ball rolling?Parisian: The best place to start is where thingshurt right now. All things being equal, when itcomes to internal programs organizations tendto respond faster to perceived pain rather thanto some potential benefit. I favor positioning BIas a way to eliminate angst and uncertainty — away to avoid getting outsmarted by competi-tors. It’s enterprise pain relief.

Let executives tell you what is broken.Listen and draw them out on the shortcom-ings as they see them. Ask about the informa-tion problems that create uncertainty or lackof granularity in their decisions. Then summa-rize each case concisely on one sheet of paper.Don’t mention BI yet. Get all the problems andpains out in the open first. After you haveenough internal case studies, you come outand say, “Here’s how BI can fix that.”

What potential advantages can BI toolsgive to a carrier’s competitors?Parisian: Competitors with BI tools can runrings around you by mining opportunities,micro-markets and other profitable avenuesthat are practically invisible to you. They caneffectively “skim the cream” of the marketsand leave the substandard business for you.And they can implement and complete mar-keting programs even before you can see a

need to imitate them. A BI-enabled competitorcan economically test and launch dozens ofcampaigns based on niche and micro seg-ments and adjust their approach on the fly asneeded. They can effectively walk away withcustomers that you would never have identi-fied or targeted quite that way.

Once there is initial buy-in from the busi-ness side, how can an insurer developcritical mass for a rollout?Parisian: Get leading managers to articulatethe pain and disadvantages of not having theright data available. Get these problemsspelled out and defined in terms that are rele-vant to BI. Be careful to not fall into the ration-alization trap. Avoid taking everything youwant to change and trying to make it relevant.Stick to the issues of real pain and conse-quence to the business, and only those thatare clearly related to BI.

How should carriers evaluate BI solutions?Parisian: An ROI analysis based on time andcost savings makes no sense for businessintelligence commitments. Spreadsheets andpayback scenarios are useful for deciding oninfrastructure, software integrations or a newclaims-processing platform, but trying to eval-uate BI that way can actually mask the valueof a BI investment that should be made.Worse, you could end up making the wrongtype of investment, if what you really need is abetter core transaction application.

BI is a strategic, enterprisewide tool and theinvestment justification must reflect that. Whatuncertainties can you remove from decisionmaking? How much can you improve timeli-ness and precision? How much is that preci-sion worth? How will this help the business runbetter, compete more effectively, and come upwith better ideas for products and services? ■

Al Parisian is CIO at Helena, Mont.-based

Montana State Fund, a workers’ compensa-

tion insurer created by the Montana state

legislature in 1990. He also is a member of

the Millbrook Executive Customer Council.


MONTANA STATE FUND CIO AL PARISIAN SHARES BEST PRACTICES FOR BUILDING A BUSINESS CASEFOR INVESTING IN BUSINESS INTELLIGENCE. IT STARTS, HE SAYS, WITH IDENTIFYING PAIN POINTS.

Ease the Pain

H

“Competitors with BI tools canrun rings aroundyou by miningopportunities,micro-markets andother profitableavenues that are practically invisible to you.”—AL PARISIAN,MONTANA STATE FUND

BusinessIntelligenceWatch




BLUECROSS BLUESHIELD OF TENNESSEE TAPS SPEECH ANALYTICS SOLUTION FROM NEXIDIA TOIDENTIFY SERVICE ISSUES AND POTENTIAL BOTTLENECKS WITHIN ITS CALL CENTERS.

Learning to Listen Better

VEN BEFORE BlueCrossBlueShield of Tennessee (2.3million members) partneredwith speech analytics provider

Nexidia, call center analytics were part ofthe carrier’s service strategy. The issuewas the reliability of the underlying dataand the effectiveness of the analysis.

Previously the Chattanooga-based not-for-profit health insurer relied on a largelymanual process. “We were dependentupon whether or not the associate couldappropriately determine the reason forthe call and code it correctly,” describesMaria Darras, director of BlueCard opera-tions, BCBST. “So it was very difficult todrill down into that information.”

In spring 2008 Atlanta-based Nexidiaperformed a demo of its EnterpriseSpeech Intelligence (ESI) application,which leverages phonetic indexing (asopposed to speech-to-text) technology.The ESI solution enables organizations toautomatically search recorded calls forkey words and phrases to identify trendsand issues, according to the vendor.

Shortly after talks with Nexidia began,it was decided that Darras’ BlueCard area— a commercial business unit that allowsmembers of one BCBS company to obtainservices while traveling or living in anotherBlue’s service area — would run a hostedversion of ESI for a 90-day proof of con-cept. The BlueCard group was selected,Darras explains, because its contact cen-

ter’s incoming call volumes and averagehandling times (AHTs) were noticeablyhigher than the company average.

The success of the trial justified abroader rollout of the ESI application,according to Darras, who notes thatBCBST decided to bring the software in-house. A contract was formalized in fall2008, and the carrier deployed the soft-ware on three Quad Core Intel Xeonservers running Microsoft WindowsServer 2003 Enterprise — an applica-tion/ingest server, a search server and adatabase server. The ESI solutionextracts calls directly from BCBST’sVerint (Melville, N.Y.) Ultra call recorder.

Teach Your CSRs Well Meanwhile the BlueCard team continuedto utilize the queries and search terms thatit had developed with Nexidia analystsduring the pilot. “We were able to identifythings that were going on in the calls thatour customer service associates were tak-ing too long to handle — maybe it was aprocess they were using to try and identi-

fy an issue,” Darras says,explaining that callers don’talways provide the necessaryinformation. “We were able tofigure out what those issueswere and teach them betterways to handle the calls.”

For example, the Blue-Card group discovered that itreceived a significant numberof calls from providers thathad sent in medical recordsthat could not be found in the

carrier’s system. After using ESI’s speechanalytics capabilities to identify the callsin which the issue came up, Darrasrelates, her team was able to pinpoint theproblem. “Associates were not alwaystaking the appropriate steps or the bestroute to identify whether the recordswere in the right place,” Darras reveals.

In response, guidelines and training

were developed to help associates stream-line the record search process. Darrasreports that call times related to the issuedropped by an average of 10 minutes.

The BlueCard area also has used ESI toimprove other parts of its customer serviceoperation. Identifying calls that includeddiscussion of the BCBST Web site, theteam discovered that providers often didnot access remittance advices when per-forming claims status checks online.“When they don’t use the Web, they have tomake a phone call to us,” Darras says.

Both claims status and remittanceadvices were available on the site, but indifferent areas, Darras explains. As aresult of the analysis, BCBST providedlinks to remittance advices each time aprovider checked a claims status online.Those improvements to the site, she says,have eased call volumes and allowedBCBST to reduce call center head count.

Given the program’s success withinthe BlueCard area, according to Darras,beginning this spring BCBST rolled outthe ESI solution across its various callcenters — including those in its memberbenefits administration, in-state providerservice, membership and billing, andMedicaid operations groups. ■

E SnapshotCompany BlueCross

BlueShield of Tennessee (Chattanooga, Tenn.;2.3 million members).

Lines of Business Group andindividual health.

Vendor/Technology Nexidia(Atlanta) Enterprise SpeechIntelligence (ESI) software.

Challenge Improve call centerperformance through betterincoming call analysis.

CaseStudy

“We were able to identify things that

were going on in the calls that ourcustomer service

associates were takingtoo long to handle.”—MARIA DARRAS, BLUECROSS

BLUESHIELD OF TENNESSEE

FOCUS ON: CALL CENTER AUTOMATION

CaseStudy

HEN Homesite Insurance Group beganoutgrowing its internal call center sys-tems early in 2007, the Boston-basedhomeowners insurer was at a cross-

roads. “With two distant call center sites, we couldn’tsustain our growth projections using a routing sys-tem that forced manual balancing of calls across twosites,” explains Chris Conti, operations VP. “And weknew we needed a true workforce management tool,rather than continuing to use Excel spreadsheets.”

For Homesite ($300 million in annual premium),which was experiencing double-digit growth, the ITtask list was long. “With so many things to accomplishsimultaneously, we set a goal of having a call centersystem in place by the first quarter of 2008,” Contirecalls. “It would immediately address three chal-lenges out of the box: virtual call-routing capability,call recording and workforce management [WFM].Long-term we hoped the system could be built-out toinclude outbound dialing, multichannel managementand computer telephony integration [CTI].”

Initially Homesite considered in-house develop-ment and sought advice from two vendors, GenesysTelecommunications Laboratories (Daly City,Calif.) and Avaya (Basking Ridge, N.J.). “But the in-sourcing costs and time frame were prohibitive,”Conti says. “So we hired a consultant to assist withexploring outsourcing.”

After narrowing the vendor list to three finalists,Pleasanton, Calif.-based Echopass’ Contact CenterOn-Demand solution, which is delivered via a soft-ware as a service model, was selected for three pri-mary reasons, according to Conti. “First, the companywas similar in size to us, which gave us C-level accessfor resolving issues inherent in major migrations,” herelates. “Second, Echopass ... provides the flexibilityto bring the system in-house in the future. Finally,Echopass furnished customer references for call cen-ters similar to ours.” As a bonus, Echopass’ voice overInternet protocol (VOIP) telephony-based solutionalso included CTI functionality out of the gate.

Immediately following vendor selection inSeptember 2007, implementation began. “Our cross-functional six-person implementation team workedwith the three on-site Echopass representatives,”Conti says. “Because IP telephony was new for us,we elected to keep the first deployment phase sim-ple by retaining our existing call center processes.”

After the initial cut-over occurred uneventfully inmid-December 2007, system tuning began. “IP teleph-ony requires network performance tuning to mini-mize latency and jitter,” Conti explains. “But it was achallenge to achieve optimum sound quality with ourexisting, analog telephone hardware. UltimatelyEchopass suggested a global move from analog hard-ware to session initiation protocol [SIP] phones.”

Once SIP phones were installed in Homesite’scall centers in late 2008, leveraging the systems’recording features began. “This allowed us to estab-lish a formal quality assurance program, includingfocused training, for the first time,” reports Conti.“Selling effectiveness has already improved by 25percent, and we’re on track for similar customerretention benefits as we continue fine-tuning.”

Homesite currently is deploying CTI processesand piloting a significant distributed expansion ofthe platform to home-based agents. WFM imple-mentation also is under way. “The workforce man-agement tool has already helped us more tightlyforecast staffing needs and more efficiently allocatestaffing resources,” says Conti.

Operationally Homesite is doing considerablymore with less. “We’ve maintained head countdespite continued growth,” Conti reports. “In fact,since implementing the Echopass platform, wehave seen the equivalent of a 15 percent head countreduction versus continuing with our old systems.”

Going forward, Homesite will cultivate internal IPtelephony expertise while continuing to build out theEchopass platform, Conti reveals. “Echopass’ ... focuson delivering a scalable architecture has clearly metour immediate goals and needs,” he says. ■

■ By Anne Rawland Gabriel ■

HOMESITE INSURANCE GROUP ACHIEVES EFFICIENCY AND SALES GOALS BY AUTOMATING CALL CENTER OPERATIONS WITH ECHOPASS’ IP TELEPHONY-BASED SOLUTION.

Phoning Home

W

“Sellingeffective-ness hasalreadyimproved by25 percent,and we’reon track for similar customerretentionbenefits.”—CHRIS CONTI,HOMESITE INSURANCE GROUP

SnapshotCompany Homesite Insurance Group (Boston; $300 million

in premium income).

Lines of Business Homeowners insurance.

Vendor/Technology Echopass (Pleasanton, Calif.) ContactCenter On-Demand and IP call center automation solution.

Challenge Automate the call center to streamline processes and efficiently support double-digit growth.

FOCUS ON: CALL CENTER AUTOMATION


2010

N THE FACE of economic uncertainty it may be tempting to follow a tentative plan of tech-nology investment. Insurance IT budgets in 2010, however, are more likely to reflect a definiteand resolute strategy. As a lasting impact of the recent economic crisis, insurance carriersmust prepare for a more intensely competitive business environment, and IT investment willbe one of their key avenues for doing so, according to experts.

“Rates are not growing, [and] the market is shrinking due to poor performance across the economy,”observes Matthew Josefowicz, head of Novarica’s (New York) insurance practice. “Carriers will have to

‘steal’ market share from others by providing betterpricing or service, and IT is at the bottom of that.”

The competitive realities of economically chal-lenging times are not new, but this time aroundother factors are intensifying the need to react, sug-gests Josefowicz. While “flexibility” and “agility”have long been buzzwords in the insurance tech-nology marketing lexicon, for example, the veloci-ty at which the economy plunged during the crisisshowed just how important these qualities are tothe insurance enterprise. Even now, Josefowiczcomments, “Few insurers’ infrastructures are opti-mized to support rapid shifts in business strategy.”

Carriers similarly find themselves challenged tokeep up with customer expectations when it comesto technology. Today’s personal technology has out-stripped business technology, with enormous conse-quences for both consumer-facing technology andthe internal work environment. “It’s easier for peopleto find information and conduct transactions in theirpersonal lives than through enterprise technology,”Josefowicz notes. “That’s a major change.”

To a great extent, surveys of insurance IT spend-ing have shown insurers’ continuing intentions not tocut their technology budgets in the face of economicchallenges. In fact many are spending more thanbefore, stresses Kimberly Harris-Ferrante, distin-guished analyst, Gartner (Stamford, Conn.). Accord-ing to Gartner research conducted in the second half

of 2009, insurance strategists who assume their com-petitors are pulling back are making a mistake.

“Twenty-eight percent of P&C companies and19 percent of life insurers invested more in IT in2009 [than in 2008],” Harris-Ferrante explains.“Therefore there’s a very good possibility that theyhave invested in strategic projects that will putthem at an advantage relative to their peers.”

Growing the BusinessGartner’s research shows that P&C companies willbe more focused on initiatives aimed at growing thebusiness, while life insurers will take on more trans-formational projects, according to Harris-Ferrante.“Life insurers are more focused on data warehouseand business intelligence, while P&C firms wereincreasingly looking at predictive modeling andprojects around product innovation,” she relates.

Michael Costonis, executive director of Accen-ture’s insurance practice for North America, seesP&C insurers’ investment in underwriting sophisti-cation in general and analytics in particular asreflective of a drive to grow top-line revenue.Carriers will continue to drive major initiatives inperennial areas of focus, such as legacy rationaliza-tion and general systems simplification, but in manyrespects their thinking is, “ ‘We’ve already done theeasy things,’ ” says Costonis. “In 2010 they will focuson customer analytics, Web servicing, and more-

OUTLOOK

CONTINUING ECONOMIC UNCERTAINTY HAS SPURRED RATHER THAN HOBBLEDTECHNOLOGY INVESTMENT, AS INSURANCE IT ORGANIZATIONS SEEK TO SUPPORT

COMPETITIVE DISTINCTION THROUGH SUPERIOR UNDERWRITING, PRICING ANDCUSTOMER-FACING CAPABILITIES. By Anthony O’Donnell

IT InvestmentHeats Up

I


“We think lessabout applica-

tions and systems thanwe do about

domains,capabilities

and services.”—KATHY OWEN,

UNUM GROUP


sophisticated underwriting and risk segmentation.”At The Hartford Financial Services Group ($9.2

billion in annual revenue), IT has been focused oneducating the business on the value of strategicinvestments over both maintenance spending androutine enhancements, according to Michael Kim,the Hartford-based carrier’s CTO. “We need to effec-tively communicate that the ‘business-as-usual’investments are not game-changers, that they willnot substantially affect the overall return on the ITinvestment or business results,” he says. “The sav-ings we make in the other categories of spendingshould be reinvested in game-changing investments.”

One such game-changing technology is predictiveanalytics, according to Kim. The Hartford currentlyis performance testing Oracle’s Exadata data ware-house and online transaction-processing platform.Using the platform, Kim reports, analytics jobs thatused to run for eight hours are now finished withinfive minutes. “Product development and researchthat used to take weeks or even months can now bedone in a day or two,” he comments. “This has anawful lot of people on the business side very excitedabout the possibilities it provides them.”

The Exadata project is in line with a rebalancingof The Hartford’s IT investment portfolio towardinitiatives that drive revenue growth, according toKim’s counterpart on the life side, Kim Root,Hartford Life’s CTO. “We are working into our port-folio initiatives that will simplify our infrastructureand application portfolio,” Root comments. “Whatwe’re after there is to make more capital availablefor growth-related initiatives.”

A Maturing VisionWhile insurers across the industry, including TheHartford, are more focused on growth than theywere in early 2009, their vision of how to achieve italso has matured, according to Joe Guastella, glob-al insurance leader, Deloitte (New York). “Tech-nology considerations have dominated the discus-sion about transformation, which has often short-changed the importance of people and processes,”he asserts. “Now people are getting back to basicson process design, management skills and measure-ments. Technology is still critical, but the otherdimensions are getting more appreciation now.”

Simultaneous appreciation for technology andprocess is evident at Chattanooga, Tenn.-basedUnum Group (approximately $10 billion in annualrevenue), where CIO Kathy Owen reports increasedIT budget with an emphasis on the development ofkey capabilities in support of business growth. “Wethink less about applications and systems than wedo about domains, capabilities and services,” she

relates. “Some of our key investment areas are SOAgovernance technologies, service orchestration,business process management, document manage-ment and decision services.” These investments,Owen explains, are aimed at delivering a more com-prehensive, scalable and agile growth platform forUnum’s major disability and life insurance business-es, with a view toward customer and product inte-gration and process simplification.

Unum still faces legacy system issues — forexample, with its main policy admin platform —Owen acknowledges. “It’s an older application withhigh value to our business, but also presents tech-nology issues characteristic of a legacy application,”she says. “Our enterprise enrollment and communi-cations platform is also a major area of investmentdirected at aligning our solutions with the businessdirection of increased employee choices in ourinsurance products and a focus on consumerism.”

Overall, Unum’s IT spending will address threekey themes, according to Owen: reduction in tech-nology complexity, acceleration in the ability todeliver business solutions, and an evolving globaliza-tion strategy to maximize the value of businessprocesses and technology assets across Unum’s mul-tiple companies. In that context Unum’s IT organiza-tion is investing in more-consistently applied and -agile development methodologies; more-productiveand -predictable build and deployment technologiesand processes; a richer development environmentthat permits more concurrent development; and awell-defined blueprint, road map, execution plan andcompetency center focusing on application and soft-ware rationalization, Owen reports.

“Rationalizing our capabilities and technologiesacross our multiple companies is also becoming anarea of focus,” Owen adds. “We are responding tothe need for a set of globalization principles andpractices that can help us govern our evolving tech-nology directions across the enterprise.” ■

Insurance IT Spending 2009-2010PROJECTED 2010 IT BUDGET AS PERCENTAGE OF PREMIUMCOMPARED TO 2009 IT BUDGET

Much Higher

Life/Annuity/Health

Slightly Higher Level Slightly Lower Much Lower

Midsize P&C Large P&C

Source: Novarica

60%

40%

20%

0

10%12%

40%

28%33%

20%28%

60%

10%

24%

7%

20%

5%


2010

OUTLOOK



By AnthonyO’Donnell

2010

F THERE’S A SILVER LINING to thechallenges of 2009, it is that new tech-nology directions have enjoyed somevalidation. Insurers’ spending reflects

a widespread conviction that it is important tomove forward with systems transformations, evenin troubled economic times.

The successes of leading-edge technologyusers — such as Progressive Insurance’s use ofanalytics — have driven aggressive adoption ofsimilar solutions on the part of other carriers. Asmembers of Insurance & Technology’s ReaderAdvisory Board attest, insurers are reevaluatingtheir business models and leveraging technologyto renovate business processes and drive morecustomer- and distributor-friendly service.

Piyush Singh, CIO of Cincinnati-based GreatAmerican Insurance Co., a subsidiary of American

Financial Group ($4.3 billion in annual revenue),suggests that the long-term success of insurancecompanies depends on a break with tried-and-truetechnology approaches. “There has been a tenden-cy in the industry to throw money at implement-ing point solutions, exacerbated by vendors hav-ing a narrow and short-term focus,” he says.“Those things won’t work in the new world.”

The economic crisis has driven review of sys-tems for the purpose of cost management, reveal-ing the persistence of problems caused by exces-sive complexity. P&C companies cannot controlclaims-related losses, but they can control the hugecost of salaries, for example, through streamliningprocesses and eliminating unnecessary or redun-dant steps. “We need to get to straight-through pro-cessing,” Singh insists. “We need to ... eliminatenon-value-added intermediate steps in processes.”

OUTLOOK

MEMBERS OF I&T’S READER ADVISORY BOARD SHARE THEIR THOUGHTS ABOUT DRIVING IT VISIONTO SUPPORT MORE-STREAMLINED PROCESSES AND TAILORED BUSINESS MODELS.

Breaking New Ground

I


THE ECONOMY in 2009 was chal-lenging for many organizations. For

CUNA Mutual Group ($13.2 billion inassets under management), achievingour business objectives translated intohelping customers weather the storm.As we enter 2010, uncertainty remains,

and business circumstances can change at any moment.Therefore, we are renewing our IT strategy to drive agility, exe-cution and value creation with our projects and deliverables.

To improve our agility and respond quickly to changing business needs, one area we are accelerating is our adoption ofvirtualization in our data centers, desktops and call centers. Thisfocus will improve our costs by lowering power and cooling,increasing our management and performance benefits, and supporting green IT efforts. Further, virtualization enables the

organization to turn the dial up or down as business demandschange, improving our responsiveness to business stakeholders.

Second, we are putting the “I” back into “IT.” As businessdemands change, business intelligence has emerged as anessential component to any business strategy. We view acomprehensive business intelligence vision and strategy asan important part of our growth and diversification objectives.

Finally, while execution may not be an exciting new trend,it is the backbone of every IT organization. For 2010 we arefocusing on key delivery execution areas, including releasemanagement, technology retirement processes, and require-ments and testing design approaches.

For us 2010 is about harnessing an opportunity for our ITorganization to be a true business partner. Our plan will renewbasic strategy fundamentals to drive goal alignment with busi-ness strategy and provide a clear IT road map for the future.

Addressing Uncertainty

By Rick Roy, CIO, CUNA

Mutual Group (Madison, Wis.)

In addition, despite the wealth of data enjoyedby the insurance industry, poor data quality con-tinues to impede effective data analysis, Singhasserts. Personal lines has done a better job thanother lines of business in this respect, he says.“The need for specialty and commercial lines tomake headway will only increase as companiesface mounting competitive pressure to be moreeffective and cost-conscious,” Singh remarks.

Another challenge, which grows more urgenteach year, is the incompatibility of legacy tech-nologies and processes with the expectations ofnew generations of insurance professionals.“These people have grown up in a different world,technologically,” Singh explains. “They won’t stickaround in places where they can’t enjoy a modern,technologically satisfactory work environment.”

As carriers overcome challenges around processefficiency, data quality and the workforce, ultimatelyboth the insurance industry and its customers willbe better off, Singh predicts. “The companies willingto look to the future dispassionately accept this,” heasserts. However, that willingness implies leaderswith the vision to chart a course. “Corporate leadersmust take a long-term view rather than avoiding thehard choices,” Sing adds. “They will need to fight anuphill battle to change the status quo and inertia. Itwill be an exercise in social change as much as atechnology implementation.”

Shifting Business EmphasisCarmel, Ind.-based Conseco (more than $4 billionin annual revenue) has been focused for severalyears on the challenge of legacy systems housingin-force business. While the carrier will continueto consolidate that environment, Conseco’s ITfocus has changed to support a new-business-oriented strategy, reports CIO Russ Bostick. “Weare moving from being a product-oriented compa-ny to being a market-oriented company,” he says.

The market to which Conseco is oriented is mid-dle-income working and retired Americans, whosedemand leans toward protection products, such assupplemental health insurance, whole life andannuities. The carrier has broad distribution rela-tionships, including captive and closely allied inde-pendent distribution, and also seeks to act as a dis-tributor of other manufacturers’ products when thatserves the needs of its chosen market, Bostick adds.

This new orientation has significant implicationsfor the kinds of technology Conseco will or will notinvest in, Bostick notes. For example, sinceConseco’s market segment has a limited appetite forexotic or complex products, product configuration

technology is not likely to be an area of emphasis.“Because of our distribution model, we can use

technologies such as CRM or marketing analyticsthat will help us to produce leads,” Bostick says.“We’re interested in the kinds of ... technologies thatwill improve customer service and foster a positiveview of our company within our target market.” ■

GENWORTH FINANCIAL is anticipating anotherchallenging economic environment in 2010,

and we are preparing to meet the challenges. Webelieve the economy and financial markets will continue to be volatile and unpredictable. We alsobelieve that the velocity that has characterized economic change — theaccelerated speed at which events happened and markets reacted fromfall 2008 to the present — will continue. As a result we expect 2010 topresent a complex environment in which businesses must operate, andsuccess in an uncertain environment requires businesses to stay close totheir customers, act with urgency and agility, and focus on their strengths.

At Genworth (approximately $10 billion in annual revenue), we’refocused on dynamically managing all of our resources and staying financially strong. We have refined our focus on core product lines of lifeinsurance, long-term care insurance, wealth management, mortgageinsurance and lifestyle protection insurance. Our operating approach isto create as many business opportunity levers as possible, knowing thatat any time a window of opportunity may open. Compared to three yearsago, we are maintaining more levers in the ready-to-pull position. Thishas direct implications for technology. We continue to focus on tech-nologies that support the development of new products, deliver greatcustomer experiences and connect us with our distribution partners.

We’ll see increased activity in analytic technologies. We prioritize ana-lytic capabilities that drive marketing, risk management and profitability.Our goal is to build an analytics layer within the business that allows usto operate with speed without compromising our ability to make deeplyinformed business decisions required by the economic reality.

Our customers have expressed appreciation for the service experiencewe’ve been able to provide through the tumultuous times of 2009, and wewill continue evolving our customer experience. We’ve focused on deliver-ing service consistently across all of our customer interactions. In all of ourservice interactions, our mantra has been finding ways to make the com-plex seem easy to our customers — we’ll do the complex part and let ourcustomers experience the ease. We are also focusing on ways to help ourdistribution partners grow their businesses — which has become moreimportant as many producers struggle to maintain their income levels.

As 2010 approaches, we’re focusing on deepening our relationshipswith customers and distribution partners and driving an integrated service and technology strategy that both catalyzes growth and increas-es our capability to manage risk and maximize profitability.

Volatility, Velocity And Complexity

By Scott McKay,SVP and CIO,

Genworth Financial (Richmond, Va.)


2010

OUTLOOK



2010

NSURERS REMAIN CAUTIOUS in their adoption ofnewer technologies. But when solutions are perceived asbeing potentially game-changing, the rules change.Insurance & Technology’s editors take a look at four

technology areas in which insurers are beginning to invest seriousattention and, in some cases, serious cash.

OUTLOOK

I


WHILE INSURERS APPRECIATE THE POTENTIAL OF THE CLOUD AND SAAS-BASED APPLICATION DELIVERY,SOME CIOS DOUBT THAT VERTICAL SOLUTIONS ARE SUITABLE FOR MISSION-CRITICAL CAPABILITIES.

Caution Among the Clouds

REFERRING TO THE FUTURE of cloud com-puting at this year’s Interop technology expo

in New York in November, keynote speak-er Mark Templeton, CEO of Citrix, assert-ed that, “The Holy Grail is to deliver ITservices on demand.” He could hardlyhave chosen a better metaphor for theelusive and even illusory area of cloud

computing. The very name “cloud com-puting” conjures images of the distant,

indistinct and unrealistic.Despite involving a third-party handoff,

cloud computing and its software-as-a-service(SaaS) incarnation ultimately present many of thesame challenges as any attempt to place businessprocesses and sensitive data on a network. Thequestion then isn’t whether the cloud works, butwhether it works well enough yet.

“The hype always leads the reality, and the realityis usually just ahead of the unintended consequences.We’re still discovering what the hype curve of cloudis,” says Drew Bartkiewicz, VP of cyber and newmedia risk, The Hartford Financial Services Group(Hartford; $9.2 billion in annual revenue). “There’s anenormous amount of energy, talk and marketingabout cloud, but it continues to mean different thingsto many people. As cloud [computing] and its riskscontinue to be defined, the insurance industry has anadvantage in being a laggard in this respect.”

CUNA Mutual has begun a sales force automa-tion project that leverages SaaS, but CIO Rick Royregards the technology as immature for mission-crit-ical uses. “When I think of core applications such as

actuarial, underwriting, claims and policy adminis-tration, I don’t believe the technology is at the com-pliance level that we, as the insurance industry, needto achieve,” he remarks. “Perhaps the concept canevolve to where the trade-off between risk andreward is compelling, but at this point I don’t seecloud computing as an enterprisewide implementa-tion within insurance and financial services, mainlybecause of security and privacy concerns.”

Whatever CIOs’ concerns, however, insurancevertical solutions are reaching maturity, accordingto Chad Hersh, principal, Novarica (New York).“Vendors such as Exigen [San Francisco], ISCS[San Jose, Calif.], [Redwood Shores, Calif.-basedOracle-owned] Solaris and Unirisx [Philadelphia]are working on putting the right business model,infrastructure, pricing models and service-levelagreements in place to truly provide SaaS, ratherthan just offering a hosted solution,” he says. “CIOsneed to look for that type of thinking — a realunderstanding of what SaaS requires in terms ofcontracts, business models and configurability, notjust calling your existing hosted solution ‘SaaS.’ ”

Michael Anselmo, CIO of Pawtucket, R.I.-basedNarragansett Bay Insurance (approximately $13million in gross written premium) recommendsthat insurers considering SaaS options use definedservice-level agreements (SLAs) that include loca-tion, technology and support. “CIOs should placecontrols and demands on vendors to ensure thatthey are supported and measured against businessgoals and, most important, ensure that the SaaSenvironment can be relocated or in-sourced when

Cloud Computing

Technologies ThatSizzle

HOT TECHNOLOGIES

SLAs are not met,” he cautions.Such controls emphasize perhaps the primary

consideration when adopting a SaaS-delivered solu-tion, according to Dave Hollander, CEO, Unirisx:“SaaS does not allow you to abdicate,” he says.

Hollander argues that early vendor adopters ofSaaS, including Unirisx, have accumulated suffi-cient history to demonstrate the security of theirsolutions. He claims that Unirisx has suppliedSaaS-delivered policy-processing services to 17clients in locations across 19 countries since 2004and is yet to have an SLA or other issue. “The ques-tion isn’t about the integrity of SaaS as much as it isabout the integrity of the insurer’s policy process,”he comments. “The real answer lies in well-archi-

tected application software solutions that run in awell-managed hardware/software hosting facilityand are actively monitored by carrier personnel.”

SaaS is ripe for insurance applications, insistsFazi Zand, Exigen’s VP of marketing and businessdevelopment. “Configurability sets a true insuranceSaaS apart from hosted applications by enablinggreater self-sufficiency and speed to market for theinsurers,” Zand says. “Robust security can be imple-mented in each layer, from infrastructure to plat-form and software. In fact SaaS security, scalability,availability and reliability are typically superior toin-house design, since the future success of theSaaS provider depends on its ability to providethese capabilities.” —Anthony O’Donnell

CARRIERS MIGHT BE JUSTIFIABLY APPREHENSIVE ABOUT DEVELOPING MORE-EXTENSIVE MOBILEOFFERINGS, BUT CUSTOMER EXPECTATIONS ARE BEGINNING TO FORCE THEIR HANDS.

Catering to a Mobile Nation

WHEN IT COMES to effective adoption ofemerging technologies, there is a fine line

between too early and too late. For muchof the insurance industry, mobile tech-nology currently is straddling that line.

On one hand, customers — who haveincreasingly adopted mobile technologyin their everyday lives — are beginning to

expect more mobile capabilities from theirinsurers. On the other hand, the mobile

landscape — while advanced — is still adeveloping field. That’s why Chad Hersh, a prin-

cipal in Novarica’s insurance practice, describesmobile as a “lukewarm” technology, not a “hot” one.“To a certain extent carriers are doing a decent jobof not foolishly jumping in where the technology isnot yet mature,” he says. “However, this is not aninvitation to be complacent, as the technology willmature quickly, and carriers need to be prepared.”

Soon the insurance industry will have to becomemore mobile. Too early is quickly becoming too late.“Mobile technology will continue to grow andevolve regardless of insurers’ interest, as 3G, 4G,smartphones, LTE, WiMax and other technologiestake flight,” Hersh continues. “It is inevitable thatinsurers’ customers will demand more mobile capa-bilities; all the carriers can control is whether or notthey can meet that demand.”

In response to growing customer demand, SanFrancisco-based Esurance is leveraging Microsoft’s(Redmond, Wash.) .NET platform to migrate itsonline applications — including claims-related

functionality, quoting, and policy management andbilling services — to the Windows Mobile 6.1 oper-ating system. The mobile claims initiative went livein May 2009; according to Deepak Srinivasan,Esurance’s director of systems engineering,additional mobile capabilities are scheduled forfuture release. Srinivasan adds that the carrier’sexisting mobile claims portfolio includes the abilityto file a claim via SMS text message and a featurepowered by Brighton, Mich.-based SeeProgress’AutoWatch service that enables customers to viewtheir cars as they are being repaired.

Srinivasan credits Esurance’s SOA-based envi-ronment with helping streamline the mobile proj-ect, allowing for quick migrations with only minorchanges required. “Services-oriented architecturereally comes into play when we have all these sys-tems, which are easily extendable,” he explains.

If the efforts of Esurance and other insurers —including Nationwide and USAA, two carriers thatintroduced iPhone applications this year — are anyindication, the risks of developing capabilities on amobile platform that has not yet reached full matu-rity are quickly being outweighed by the demandsof agents and customers who are becoming moreand more dependent on their mobile devices intheir everyday lives. “Other industries — includingbanks and other financial services firms, airlines,retailers, etc. — are setting consumers’ expecta-tions,” Novarica’s Hersh notes. “Consumers, inturn, are — or more precisely, will be — forcinginsurers’ hands.” —Nathan Conz

“As cloud[computing]and its riskscontinue to bedefined, theinsuranceindustry hasan advantagein being a laggard in this respect.”—DREW BARTKIEWICZ,THE HARTFORD

Mobile Computing

“Carriers aredoing a decent

job of not foolishly

jumping inwhere the

technology is not yetmature.”

—CHAD HERSH,NOVARICA


2010

OUTLOOK

INSURANCE TECHNOLOGY HOT TECHNOLOGIES


2010

OUTLOOK


INSURERS WILL EXPAND THE USE OF ANALYTICS BEYOND FRAUD DETECTION, CUSTOMER RETENTIONAND PRICING TO CLAIMS ANALYTICS, RENEWAL IMPACT ANALYSIS AND SOCIAL NETWORK ANALYSIS.

Providing Enterprise Answers

THE CONSENSUS among industry analysts isthat insurers’ adoption of predictive analytics

will continue to expand in 2010. And ven-dors happily concur.

Analytics suffered along with othertechnologies in early 2008 as insurancecompanies began to take measure of thedeveloping financial crisis. But, “As 2008

closed insurers saw analytics, along withother IT solutions, as a possible answer to

the recession rather than a cause,” commentsStuart Rose, global insurance marketing manag-

er for Cary, N.C.-based SAS. As a result, adoption ofanalytics has increased in the past year, he says.

According to Rose, insurers’ predictive analyticsinitiatives in 2009 concentrated on fraud detection,customer retention and pricing. Those issues willcontinue to be priorities in 2010, he opines, but car-riers also will emphasize claims analytics, renewalimpact analysis and social network analysis.

Zurich North America Commercial, a member ofZurich-based Zurich Financial Services Group(US$37.2 billion in premium and policy fees) and aSAS customer, reports driving a multitude of analyt-ics-related initiatives. “We use SAS for both gatheringdata and building models, and our value drivers arethings such as loss-ratio improvement, risk manage-ment and customer retention,” explains Joel

Appelbaum, chief analytics officer, programs anddirect markets, Zurich North America Commercial.

“We use analytics to determine the kind of auditprocedure or service offering we would provide,”Appelbaum continues. “For example, if an accountis growing fast, it may trigger an auditor to do anexposure evaluation — we never had a cost-effec-tive way to do that before.” Using predictive models,Zurich also is able to anticipate claims spikes andsend risk engineers to insured properties to proac-tively prevent losses, according to Appelbaum.

“Profitable growth is another huge value driverfor us,” he adds. “We’re identifying the right priceto charge for accounts with similar characteristicsand developing a technical price based on thecharacteristics of the risks. We will direct ouragents or brokers to certain niches or accounts tosell or cross-sell additional lines of business.”

Zurich also uses predictive analytics to driveease of doing business for distributors,Appelbaum notes. “We used to ask for financialinformation during a referral process and see if agiven risk merited extending a deductible,” heexplains. “With predictive analytics we can pre-dict which prospects are more likely to be prof-itable and withstand a certain level of deductible— we don’t need additional information that iscumbersome to the business process.” —A.O.

AS SOCIAL MEDIA MATURE, CARRIERS INCREASINGLY ARE LOOKING TO LEVERAGE THE TECHNOLOGY TO CONNECT WITH CUSTOMERS AND ACCESS NEW MARKETS.

INSURERS HAVE BEEN dipping their toes insocial networking for several years. But it nolonger is enough merely to have a presence on asocial networking site.

“[Carriers] are increasingly focused on usingsocial media to access new markets [and] cus-tomer segments and to get the word out,” says JoeGuastella, principal, insurance, Deloitte Consulting.“Now we’re actually talking to the compliance peo-ple about that. ... It’s a bit of a learning curve, butsocial media will develop quickly as an integral part

of a company’s presence and possibly distribution.”As such, carriers increasingly are customizing

their social media sites. New York Life ($14 billionin 2008 operating revenue), for example, has joinedforces with LinkedIn to offer a customized experi-ence. “We have been participating in a beta programwith LinkedIn that shows an agent recruiting viewof the company to those in sales and a corporatejobs view to others,” relates Kenneth Hittel, VP, cor-porate Internet department, for the New York-basedinsurer, which also maintains a Facebook page.

“People areincreasinglyfocused onusing socialmedia toaccess newmarkets [and]customer segments.”—JOE GUASTELLA,DELOITTE

Risk Assessment

Social Media Pave New Paths

For more oncarriers’ useof analyticsto fight fraud,see feature,page 25.

Statement of Ownership

According to Ben Foster, senior strategy andcontent manager – social networking for AllstateLife Insurance, a business unit of Northbrook, Ill.-based Allstate ($29.4 billion in 2008 revenue), thereis huge value for a company that can create a per-sonalized social Web experience. “The social Webcan help us deliver a highly personalized experi-ence that could so radically improve products,services and experience that leading brands in ourindustry could become as beloved as brands likeNike, Whole Foods or Apple,” he asserts.

In addition to a Facebook page and multipleTwitter accounts (each with its own objective),Allstate also supports proprietary communitymicrosites, where people can share ideas about“keeping families safe, saving money and prepar-ing for what’s next,” Foster relates.

Meanwhile the dynamics of social media areforcing carriers to communicate much moreopenly — both internally and externally — thanever before. “People are more proactively askingus things, asking our opinions,” says New York

Life’s Hittel. “Communication is muchmore conversation-based.”

Under the auspices of carriers, agentsalso now have a pervasive social mediapresence — although regulatory con-cerns are always top of mind. “They can-not conduct business on the site,” Hittelexplains, referring to New York Life’s Face-book page. “When they communicate withanyone from a business perspective, they usetheir dedicated agents’ e-mail, which we can monitor.We meet all of our SEC and FINRA requirements.”

Adds Deloitte’s Guastella, “It is a sign of maturi-ty, if you will — the fact that [social media have]been raised to the attention of compliance officersrather than just on the distribution side. Previouslypeople were just brainstorming on how socialmedia could help distribution and community pres-ence. Now it has been elevated to something need-ing oversight and management as part of companyoperations. That represents a maturation of its per-ceived role in the company.” ■ —Melanie Rodier

Social Networking


2010

OUTLOOK


N 1936 NOTED sociologist RobertMerton popularized the concept of“unintended consequences” in his paper“The Unanticipated Consequences of

Purposive Social Action.” It is interesting to juxta-pose Merton’s observations with the flurry of finan-cial services regulation reform proposals that havesurfaced in Washington over the past 18 months.

“The most obvious limitation to a correctanticipation of consequences of action is provid-ed by the existing state of knowledge,” Mertonwrote. “The extent of this limitation may be bestappreciated by assuming the simplest case wherethis lack of adequate knowledge is the sole barri-er to a correct anticipation.”

As we head into 2010, several bills lingering inCongress vary in scope and severity in terms ofthe extent to which they would, if enacted,change the way insurance is regulated. One billput forth by Senate Banking CommitteeChairman Chris Dodd (D-Conn.) would strip theFederal Reserve of its powers and replace it withthree agencies. Then there is a list of bills thatseek to create some sort of federal insuranceoffice — from the more benign Office ofInsurance Information to the less defined Officeof National Insurance — that would give the fed-eral government the ability to preempt state law,something those in favor of keeping state-basedregulation, including the National Association ofInsurance Commissioners (NAIC), fear couldwork to usurp the current, state-based system.

The bottom line is that no matter where youstand on how insurance should be regulated, twothings on the regulatory front are certain: Therewill be change, and that change won’t be easy.

A Ripple EffectIt’s not too far of a stretch to suppose that the vehe-ment and vigorous debate currently on the table ismost likely to continue long after bills are passedand signed into law by President Obama. Histori-

cally, in the rush to plug sections of the system thatsuddenly seem to be broken, other, unintendedissues may surface as a result of the “repair.”

One of the more recent examples is theSarbanes-Oxley Act of 2002. Put in place in answerto malfeasance seen in the corporate sector, thelaw is aimed at bolstering internal controls overfinancial reporting. Supporters of the edict havepraised its ability to strengthen corporate account-ing controls, while critics have said the cost/benefitdoes not add up and that the law has hindered

international competition. And while Congress iscurrently weighing whether to grant a reprieve forsmaller companies, starting in 2011, nonpubliccompanies that meet a certain threshold arerequired to comply with SOX-like best practicesthat the NAIC has written into its Model Audit Rule.

Moving forward, victors in the regulatoryoverhaul debate may indeed seek to deem thenew rules a success. Buzzwords and phrases thatmake people feel comfortable, such as “con-sumer protection,” “level global playing field” and“putting the reins on ‘too big to fail’ ” will likelyrule the day for a while.

But what happens when everyone heads backto the office to try to figure out what it all reallymeans? Will there be added compliance costs lev-eled at insurance companies and the consumersthey serve? Will there be confusion and stressesput on the industry that weren’t there before?And will there be overlapping, dual regulationbetween the state and federal levels, despitepromises to the contrary?

There will be consequences, and that may notbe a bad thing. It’s the unintended ones that weneed to watch out for. ■

ADAPTING TO UPCOMING REGULATORY REFORM WILL BE A CHALLENGE FOR THE INDUSTRY. BUT IT’S THE UNINTENDED CONSEQUENCES THAT CAN BE THE MOST COSTLY, SAYS HOWARD MILLS,CHIEF ADVISER FOR DELOITTE’S NATIONAL INSURANCE GROUP.

The Truth About Unintended Consequences

I

For more on Deloitte’s forecasts for the insurance industry, see related article, page 14.

Two things on the regulatory front are certain: Therewill be change, and that change won’t be easy.


2010

OUTLOOK



2010

OUTLOOK


10 in 2010:What to Watch inThe Year Ahead

Vendor ConsolidationGains MomentumMERGERS AND ACQUISITIONS in the insur-ance vertical software solutions industry willaccelerate, according to a November 2009Novarica report. The researchers anticipate

numerous deals in the $30 million to $75 million range but arereluctant to speculate about the potential of larger-scale dealsinvolving larger vendors that have moved to acquire portfolios ofinsurance solutions. The report encourages insurers to be awareof the possibility that their solutions vendors could be acquired,based on a vendor’s status as one of three types of companies:Rising Star; Good Tech, Small Company; and Stagnant ProductProvider. According to the report, “Acquisitions of a Rising Staror a Good Tech, Small Company provider are likely to result inincreased investment in the product, while acquisitions of stag-nating product providers are likely to result in forced conver-sions or migrations.” As a result, the report advises, “Insurersshould protect themselves as much as possible through contrac-tual means, including demanding base code escrow and service-level guarantees that survive change of control.”

—Anthony O’Donnell

A Bumpy Road to Healthcare ReformAT PRESS TIME the efforts of the Obamaadministration to reform the U.S. healthcare —and health insurance — system passed a majorhurdle when the Senate voted along party lines

to bring to the Floor a bill that would overhaul the nation’shealthcare system. Still, with continuing disagreement among allthe players about what should and shouldn’t be included or cov-ered, how much the changes will cost, and who ultimately willfoot the bill, it seemed unlikely that President Obama’s goal ofpassing healthcare reform before the end of 2009 would be met.In the meantime, health insurance companies, which can expectcontinued criticism regardless of what happens on the policyfront, are focused on streamlining claims processing, providingcustomized care-tracking tools and leveraging Web 2.0 capabili-ties, not only to improve customer and provider experiences,but also to reduce inefficiencies. —Katherine Burger

The Promise of Emerging MarketsWHILE CRASHING ECONOMIES have causedmany of the world’s wealthiest individuals topost huge financial losses, the number of mil-lionaires in China actually is rising. By the end

of 2009 the country will be home to 450,000 millionaires with anet worth estimated at about US$1.73 trillion, United PressInternational reported. Ultrahigh-net-worth individuals in Chinawant the same privileged services as institutional investors andare demanding diverse products — including insurance, accord-ing to Hua Zhang, an analyst in Celent’s Asia Research group —from multiple wealth management companies. Many of China’sasset management firms are part of large insurance companies.But Shanghai-based consulting firm Z-Ben suggests that insur-ers, “the largest and most globally minded investors in China,”are now seeking long-term foreign partners to help manage theirUS$540 billion in assets under management — an 11 percent risein assets since 2008. — Melanie Rodier

Insurers Test Mobile ApplicationsIF 2009 TAUGHT us anything, it’s that peoplewere willing to forget the last bizarre and dis-turbing decade of Michael Jackson’s life. Butmore important, it also taught us that people

enjoy a good mobile app. In April, before the site even reachedits first birthday, more than 1 billion applications had beendownloaded from Apple’s iPhone App Store. That number hassince doubled. A very small but growing percentage of thosedownloads involved apps developed by insurance companies.With carriers such as USAA, Nationwide and AXA Equitableleading the way, the insurance industry is beginning to recog-nize the importance of not just the mobile channel as a whole,but the mobile application channel specifically. And it’s a goodthing: The iPhone has shown no signs of losing popularity,while recent offerings based on Google’s Android mobile oper-ating system promise to expand the mobile application devel-opment universe. As consumers become accustomed tomobile apps in their everyday lives, they’ll demand similarfunctionality from their insurance providers. —Nathan Conz

WHICH EXECUTIVES AND PUBLIC FIGURESWILL GRAB HEADLINES IN 2010? WHATCOMPANIES AND ORGANIZATIONS WILLBE IN THE NEWS? WHAT TECH AND BUSINESS DEVELOPMENTS WILL CHANGETHE COMPETITIVE ENVIRONMENT? THEI&T EDITORIAL TEAM OFFERS SOME PREDICTIONS FOR THE COMING YEAR’SINSURANCE TECHNOLOGY NEWSMAKERS.

10 TO WATCH IN 2010

Can Benmosche Save AIG?FORMER METLIFE CEO Robert Benmoscheemerged from his villa on the Adriatic in 2009to head AIG after the departure of formerAllstate CEO Edward Liddy. Benmosche’s

forceful style recalls the days of former AIG CEO HankGreenberg. However, in November Benmosche’s threats toquit under what he characterized as the impossible constraintsof compensation limits imposed by “pay czar” KennethFeinberg raised doubts about the compatibility of that manage-ment style with the relationship the company now has with theU.S. government. On the other hand Benmosche’s personalityand drive could provide the persuasiveness to resolve AIG’slingering legal and financial challenges — and potentiallyreturn the insurer to a competitive state. —A.O.

Readying for Regulatory ChangeOVER THE COMING year insurers withtransatlantic reaches will continue to grapplewith the likely implications of InternationalFinancial Reporting Standards (IFRS) and the

2012 deadline for the European Union’s Solvency II regulation.Of even greater consequence for U.S. insurers, however, will bepotential new federal involvement in insurance regulation. Theestablishment of a systemic risk regulator is likely to affect onlythe largest companies. But consumer-related federal involve-ment within insurance regulation could affect the industrymore broadly, either through the action of a proposedConsumer Financial Protection Agency or by optional federalcharter, as proposed within the National Insurance ConsumerProtection Act (NICPA). Insurance IT organizations will have tobe ready to address any of these regulatory changes withexpanded capabilities for reporting, risk modeling and trans-parency, at the least. —A.O.

Accenture v. Guidewire:What Are the Implications?ACCENTURE’S ONGOING LEGAL battlewith Guidewire gained renewed visibility inlate 2009 when the former filed another suitagainst the latter, building on earlier accusa-

tions of patent infringement. Decisions in the cases couldsimply uphold standards of protection for intellectual proper-ty and the proper basis for technology patents. But someindustry observers have suggested that an Accenture legalvictory could set a precedent for “competition by litigation”— a practice alleged to be common in the horizontal softwareindustry but not, so far, in the insurance vertical solutionsspace. —A.O.

The Appeal Of OutsourcingWITH DARK CLOUDS still hanging over theeconomy, cost control continues to be top ofthe agenda for insurance carriers. Insurerslooking to fill staffing gaps while taking

advantage of specialization are turning to outsourcing. Areasmost often considered ripe for outsourcing include IT as wellas business processes such as human resources, billing,accounting, call centers and claims. Meanwhile the Satyamscandal in India does not appear to have dampened enthusi-asm for outsourcing as a way to stretch staff and budgets, andinsurers are leveraging the greater availability of outsourcingresources to negotiate better prices and services. —M.R.

What’s Next For Oracle?THE FLURRY OF insurance technology vendor deals that closed the year turnedattention to one of the “900-pound gorillas”in the space — Oracle, which in recent years

has been one of the most aggressive acquirers of insuranceand banking software providers. With the market likely toopen up (see “Vendor Consolidation,” opposite page), willthe new year see Oracle active in the software merger andacquisition space — and if so, what companies will be its targets? Or will 2010 be another year of digesting and inte-grating past acquisitions, such as AdminServer and SkyWireSoftware, following the 2008 creation of the Oracle Insurancevertical industry division? Perhaps none of the above, as Oracle may be preoccupied with completing and integratingits acquisition of Sun Microsystems. —K.B.

Sophomore CIOsLead the Charge THE PAST YEAR saw a number of high-levelinsurance technology executives take onnew, high-profile assignments, includingGary Plotkin, who moved from The Hartford

to become CIO of OneBeacon; Jay Levine, who joinedBlueCross BlueShield of Minnesota as CIO from WoltersKluwer; Mike Anselmo, who was named CIO of NarragansettBay Insurance after a stint at QBE Specialty Insurance; andTim Handren, who moved to Mutual of Omaha as EVP ofinformation services from USAA, to name a few. As theseexecutives and their peers move into the sophomore year oftheir new assignments, they will be in the spotlight as theyposition their IT organizations and companies (on time andwithin budget, of course) to capitalize on the opportunitiesand overcome the challenges outlined in this 2010 Outlookreport. ■ —K.B.


2010

OUTLOOK

INSURANCE TECHNOLOGY 10 TO WATCH IN 2010


Finding Patterns

In the DarkIn the never-ending fight against , insurers areemploying data mining and predictive analytics technologies inincreasingly innovative ways to identify obscured data patternsand establish effective benchmarks for claims investigations. By Nathan Conz

Feature FRAUD DETECTION

“The world is getting smaller, the technology isgetting more sophisticated and the bad guys unfor-tunately are getting more sophisticated too,” saysRobert Zandoli, VP of IT risk and compliance andchief information security officer at New York-basedMetLife ($51 billion in total revenue). “On the otherside of that, we have many programs using state-of-the-art technology to continue to keep up with thosethreats.” (For more on MetLife’s use of technology toneutralize enterprise threats, see sidebar, page 34.)

Citing her own experience as well as conversa-tions with peers, Sheri Farrar, executive director ofChicago-based Health Care Service Corp.’s (morethan 12.3 million members) special investigationsdepartment, says there has been an increase inhealthcare fraud recently. Traditional schemes —such as billing for services not rendered, miscodingto be paid for services not covered and up-coding— remain, she adds, but they’ve grown andevolved. “The traditional fraud is still there,” Farrarnotes. “But we’re seeing increases in using thosetypes of schemes in more-sophisticated ways.”

To fight those schemes, insurers are turning toincreasingly sophisticated data analytics tools.According to Celent’s Light, data mining and analyt-ics solutions make up the foundation of modernfraud mitigation technology. “Data mining enablesanalysts within the claims department or an SIU tofind patterns that are invisible to individualadjusters because a single adjuster only sees asmall portion of the total claim volume,” Light says.“Predictive analytics builds on the data mining find-ings to create red flags and claim potential scores.”

Health Care Service Corp. (HCSC) is among thecarriers that are employing analytics successfully in the fight against fraud. In June the company

HERE IS A COMMON misconceptionthat as technology does more, peopledo less. But while automation relievespeople of manual tasks, it also freesthem to do their jobs smartly. The bene-fits of technology are obvious in fraudmitigation, an area of the insurance

enterprise where technologies around data miningand analytics have helped special investigations unit(SIU) members take deeper dives into claims data touncover patterns of potential fraud that previouslywent undetected. When it comes to fraud mitigation,technology doesn’t replace human ingenuity — itaugments it by providing investigators and claimsadjusters with more context and more information.As such, the true value of data mining and analyticsto fraud mitigation is realized in the innovative waysthat carriers leverage it.

And for certain, carriers have had to becomemore innovative as the frequency and complexity offraud have increased. Fraudsters have ramped uptheir efforts recently in large part because of theeconomic downturn. “The most serious currentfraud threat is the increasing number of people whoare in economic difficulties — or think they may bein the near future — and look for claims checksfrom insurers as a way of obtaining some quickcash,” notes Donald Light, a senior analyst inCelent’s insurance practice.

As fraudsters have turned up the intensity of theirattacks, their tactics have become ever moresophisticated. When it comes to fraud prevention, itis no longer possible for technology organizationsto hope to maintain a status quo — those that donot proactively stay a step ahead of the bad guysbecome their prime targets.

TFeature FRAUD DETECTION


announced that it had uncovered a fraudulentscheme involving an Illinois allergist’s office thatwas billing for non-rendered services, unbundlingservices and balance-billing members. The scamgenerated $800,000 in fraudulent claims andresulted in $2.5 million in fines and restitution.

According to Mone Petsod, a senior investiga-tor in HCSC’s SIU, the initial allegations againstthe allergist involved very small amounts ofmoney. Even after the FBI contacted HCSC withmore complaints from members, the case stillhad little momentum, he admits, acknowledgingthat in the past the case could have stalled. Butby leveraging a joint solution developed in con-junction with IBM (Armonk, N.Y.) and SAS (Cary,N.C.), Petsod was able to uncover suspiciouspatterns during a data analysis.

“The allegations involved rather small sumsof money, but when we looked into the data wefound other issues with this same provider andher billing,” Petsod recalls. “That’s when the gov-ernment began to investigate this case further.”

The solution, which was custom-developedby HCSC and its vendor partners, is built fromIBM’s FAMS solution and SAS Enterprise Miner.According to HCSC’s Farrar, the two technolo-gies work in tandem. FAMS is a more tradition-al fraud solution, with rules-based capabilities,while the SAS data-mining tool provides HCSCwith the flexibility to perform additional analyt-ics, she explains. “It allows us to drill down intothe claims data further than just the code level,”Farrar says. “Using those different levels of ana-lytics, you might be able to identify a fraudscheme that, on the surface, wouldn’t appear injust your basic data analysis.”

The key in the allergist case, Petsod says,was comparative analysis. When only the aller-gist’s total billing was examined, the schemewas not apparent.

Innovative and Proactive AnalysisThe break came when Petsod was able to com-pare how and what the provider in questionwas billing customers for a particular proce-dure against other providers’ billing. “The mainthing that jumped out at me was how the aller-gist was billing,” Petsod says. “It was so differ-ent from other allergists.”

In the past, Petsod adds, the SIU was limitedlargely to following leads. The new data analy-sis capabilities enable much broader review.“Previously I wouldn’t have been able to look atthe whole picture to see how this particularprovider was different,” she comments.

The contracts for the solution were signed inthe second half of 2004 and a pilot was conductedin 2005. But, Farrar says, the carrier didn’t begin totruly realize the benefits of its new data analysiscapabilities until 2007. “It takes time to reallyunderstand the capabilities that you have, developthe routines that you want to use and begin to seethe results as you apply your data-mining capabil-ities to your pool of claims,” she relates.

To ensure that investigators understand thenew data capabilities, HCSC has conducted atremendous amount of training over the pastcouple of years, reports Farrar, who concedesthat in hindsight training should have startedsooner, when the solution was in development.“The cases that are being identified [now] aremore complex — there has been a learning curve

W HEN IT COMES to outside threats, the insuranceindustry is under attack from two predatorysources: fraudsters and hackers. Carriers are

forced to defend themselves on two fronts.While special investigations units (SIUs) identify fraudu-

lent activity perpetrated by providers, criminal rings andindividual policyholders, IT security personnel protect sensi-tive data and the network from hackers who try to infiltrateenterprise IT systems, databases and technology environ-ments. Nonetheless some of the data tactics insurers applyto fighting fraud can help secure enterprise IT as well.

To fortify its IT environment, MetLife takes a layered secu-rity approach, deploying broad, enterprisewide securitymeasures as well as solutions that address specific risks.According to MetLife chief information security officer (CISO)and head of IT risk and compliance Robert Zandoli, tacticsrange from the use of managed services and firewalls to

encrypted laptops and the segregation of information, a strat-egy that places additional gateways between sensitive dataand a hacker even after initial defenses have been breached.

One of the newest tools in MetLife’s arsenal is an intrusion detection system. The technology, Zandoli says,addresses one of the most basic security risks — the intentional or unintentional loss of company data — but inan innovative way.

The solution tracks information in transit throughoutMetLife’s organization — for example, when data is trans-ferred from a company laptop to a server — with the goal ofspotting unauthorized or unwanted transfers, explainsZandoli, who declines to provide details regarding timeline orvendor partners. “There are really two aspects to it — detec-tion and prevention,” he reveals. “Detection tells me where theinformation is going; prevention stops it from going to anunauthorized device, like an unencrypted USB device.” —N.C.

Prevention and IT Security: A War of Two Worlds

“There hasbeen a learning

curve for theinvestigators

to understandthe data as

it comes to them.”

—SHERI FARRAR, HEALTHCARE SERVICE CORP.

Feature FRAUD DETECTION

for the investigators to understand the data as itcomes to them,” Farrar says. “It requires a lotmore interaction between our analysts and ourinvestigators so the analyst can explain to theinvestigator why the data tends to indicate thatsomething inappropriate is going on.”

A Scientific DiscoveryA strong analytics layer also is key to InfinityProperty & Casualty Corp.’s (IPACC) fraud-detection strategy. But until 2008 theBirmingham, Ala.-based auto insurer relied on atraditional SIU department that worked closelywith the claims adjustment staff to identify andinvestigate fraud. A part of that process includ-ed providing adjusters with National InsuranceCrime Bureau (NICB) red flag indicators, whichwere delivered to adjusters via laminated paperdocuments.

“It was basically up to the adjusters and thesupervisor to identify [potentially fraudulent]claims,” says William Dibble, SVP, claims,IPACC. “That was how we approached it. It wasvery traditional, no science applied.”

In recent years, though, the carrier determinedthat fraudulent claims were slipping through thecracks. “[Adjusters] were so wrapped up in get-ting the claim settled that they were missing basicfraud issues,” Dibble admits. “We also were find-ing that there were delays in getting files to theSIU department. It was just an antiquatedapproach to fighting fraud. We realized that thebad guys were winning. They were becomingmuch more sophisticated than we were.”

To fight back, IPACC ($897 million in 2008gross written premium) implemented a solu-tion that incorporates components of the IBMSPSS (Chicago) predictive analytics suite,including its Decision Management Tools andModeler products. “We wanted to take a solu-tion that we could use across the enterprise,not just for claims but perhaps for underwritingand sales,” Dibble explains.

Nonetheless, Dibble stresses, the primarygoal of the system was to streamline the claimsprocess. It was important, he adds, to right-track claims that did not have any fraud identi-fiers — speeding the settlement process. “I didnot want just a fraud model,” Dibble says. “Iwanted something more robust.”

What the carrier got with the SPSS tool —which was purchased in July 2007 and deployedin February 2008 — is a solution that identifiessuspicious claims earlier in the process, allow-ing the SIU to start investigations earlier andwith access to better information. According toa case study developed by Nucleus Research,IPACC has had more success investigating

fraudulent claims largely because investigatorsare examining evidence before it is stale andinterviewing the parties involved while theirmemories are still fresh.

Further, the tool has allowed IPACC to takea more nuanced approach to fraud identifica-tion. For example, “We can now identify fraudbased on geographic location,” Dibble explains.“It’s not just one rule applied everywhere. Forinstance, we know that clinical or medical fraudis very big in Miami, so we can build certainrules just for Miami.”

In one case IPACC found that a specific inter-section was seeing a large number of accidentsinvolving its insureds at a certain time of day. “Bybuilding rules that looked at all accidents between10 p.m. and midnight involving multiple-occupan-cy vehicles and at-fault accidents at a certainintersection, we found a [fraud] ring in that areathat was generating claims,” Dibble relates.

Currently the carrier’s adjusters and SIU per-sonnel leverage the new analytics capabilitiesto identify trends and create rules to addressthem. But in the future, Dibble notes, heexpects that the tool will identify trends proac-tively, freeing analysts to focus on rules genera-tion. “There is no reason the SPSS softwarecouldn’t do that for us,” he suggests. “Here’show it is evolving: When we started, we had twoanalysts that were looking at rules. We’re nowputting a third one in, and I surely [hope] to putin a fourth next year. Those rules keep changingdaily, and we keep getting more robust.”

Unfortunately fraudsters are changing theirtactics just as quickly. In the health insurancespace, new types of fraud related to diagnostictesting and alternative therapies are creepingup on carriers, according to HCSC’s Farrar.Some of those newer fraud schemes are socomplex that they are difficult to detect — evenfor some data mining and rules-based technolo-gies. “So many of [the fraud schemes] touch onmedical necessity — healthcare fraud thatincludes a medical necessity component gener-ally requires that you look at the medicalrecords and have some sort of medical review,”Farrar explains, adding that these claimsrequire more human analysis than a rules-basedsystem that flags claims can provide.

“The problem seems to be growing, and itseems to be getting more complex as well, mak-ing data-mining ... solutions more difficult [toleverage effectively],” Farrar says. “You can’t doit with just technology. You need to have theanalysts behind that technology to identify thebest cases, and then you have to have investiga-tors who understand the data and have the abil-ity to complete investigations.” ■

“The technolo-gy is gettingmore sophisti-cated and the bad guysunfortunatelyare gettingmore sophisti-cated too.”—ROBERT ZANDOLI,METLIFE

Feature


FRAUD DETECTION


2009ExecutiveSummitReport

Conditions are favorable to “present business ideasand options,” Esposito suggested, adding that sen-ior management and business executives “aremore open to listening.”

Ultimately, whether a technology executive is onthe acquiring or to-be-acquired side of the deal, it’simportant to “be a leader” rather than a follower,stressed Russ Bostick, EVP, technology and opera-tions, Conseco Services. Essential capabilitiesinclude “flexibility, resiliency and [being] adapt-able,” he said. If a CIO doesn’t have these skills,

“You won’t be involved — you’ll be marginalized.”Concurring that flexibility is a key competency in

driving growth and success, Deepak Srinivasan, direc-tor of systems engineering at Esurance, detailed howthe 10-year-old carrier was able to move quickly whenit discovered in 2008 that its J.D. Power customerservice rankings compared unfavorably to its com-petitors’ rankings. Esurance responded by prioritizingseveral customer service-related IT projects,Srinivasan reported. By April 2009, those projectswere delivered, and in the most recent J.D. Powerreport, Esurance’s ranking had improved significantly.

Phil Swift, Esurance’s CIO, described the carri-er’s project management strategy as a flexibleprocess and one that has allowed high-impactprojects to jump to the top of the queue as priori-ties have shifted.

AXA Equitable EVP and CIO Kevin Murray dis-cussed the financial crisis’s impact on customerservice. According to Murray, when financial newsturned ominous last fall AXA Equitable’s customerservice areas experienced increased call volumesand calls that lasted two to three times longer thanusual. To get a better idea of what was happening,Murray used the carrier’s call center technologycapabilities to listen in on incoming calls. He dis-covered the crisis had changed the kinds of cus-tomer service interactions the carrier was having.

AXA Equitable’s customer service team had to— temporarily, at least — change its approach.Problem solving wasn’t as important as reassuringcustomers that the company was stable and their

HERE ARE OPPORTUNITIES for growth, service improvements and IT invest-ment — even during times of crisis. That was the consistent message fromspeakers at Insurance & Technology’s 11th Annual Executive Summit lastmonth in Phoenix. Addressing the challenges around keeping IT relevant dur-

ing a merger, Mark Esposito, CIO, Hartford Life, emphasized the need for CIOs and othertechnology executives to proactively face the requirements and risks of the current busi-ness environment. The financial crisis actually has created some opportunities, he said.

T2009 Elite 8

honorees: (toprow, l. to r.)Keith Sievers,Unitrin ServicesGroup; BobCasale, Mass-Mutual; AndyEdwardson,FarmersAlliance MutualInsurance;Kevin Murray,AXA Equitable;(seated, l. to r.)Andy Wood,Wilton Re;Eileen Slevin,New York Life;Lori Beer, WellPoint; MarkBerthiaume,Chubb Group.

PARTICIPANTS IN I&T’S 2009 EXECUTIVE SUMMIT TACKLED CONCERNS ABOUT MERGERS, CUSTOMERSERVICE AND PROJECT PRIORITIZATION — WHILE ALSO DEBATING STRATEGIES TO DRIVE GROWTH.

Leading BeyondThe Crisis

money was safe, Murray said.Responsiveness is essential, because customer

service expectations are “industry-neutral,” mean-ing that for consumers, “Every service experienceinforms your expectation of the next one,” accord-

ing to Jeremy Bowler, senior director, insurancepractice, J.D. Power & Associates. He advised insur-ers wishing to increase satisfaction to follow thebest practitioners of customer service, regardless ofindustry. The upside: A relatively minor improve-ment in service can drive improvement in an insur-er’s overall customer satisfaction score.

Insurance technology executives are relativelyoptimistic about their business, reported CraigWeber, SVP of Celent’s insurance group. When askedhow the financial crisis would affect IT projects, onlya small percentage of executives recently surveyedthought the impact would be high, while roughly halfsaw a moderate to low impact, he related.

Sponsors of the Executive Summit wereAccenture, Capgemini, CSC, Diamond Management& Technology Consultants, EMC DocumentSciences, FICO, Genpact, HCL AXON, HP, LexisNexis, Microsoft, SAS, Tata Consultancy Servicesand TeamQuest. For more information about I&T’sannual Executive Summit, please visit us online atexecutivesummit.insurancetech.com. ■

The economyhas causedEsurance toshift its focusfrom “grow,grow, grow” to “consolidate, consolidate,consolidate,”acknowledgedPhil Swift(above, r.). IT’srole pre-, duringand post-merg-er wasaddressed byHartford Life’sMark Esposito(above, l.) andConseco Services’ RussBostick (far left),who empha-sized, “Be aleader,” not a follower.

Building in effi-ciency at everystep is central toEsurance’s suc-cess, said DeepakSrinivasan (top, l.).Relatively minorimprovements inservice can signifi-cantly improvecustomer satisfac-tion, noted J.D.Power’s JeremyBowler (top, cen-ter). Analytics isone of the hottestareas for IT invest-ment in insurance,reported Celent’sCraig Weber (top, r.).


2009ExecutiveSummitReport


AY ORAL’S IDEA of relaxing is driv-ing a Corvette around a racetrack atbreakneck speeds. The recentlyappointed CIO of CNA acknowl-

edges that it’s not entirely unlike his job, in asmuch as he races against time, implements riskmitigation strategies and collects metrics witha view toward improvement. “It’s about learn-ing to get around the track faster and being ableto analyze what I’ve done to improve my per-formance the next time,” he relates.

Having joined Chicago-based CNA ($7.8 bil-lion in annual revenue) in 2008 as SVP for appli-cation development and maintenance, Oral wasquickly given the opportunity to analyze ways toimprove the carrier’s IT organization while thenCIO John Golden embarked on an attempt tosummit Mount Everest. “During the time Johnwas pursuing his dream I was essentially respon-sible for managing the IT function here and hadan opportunity to interact with new leadershipwhile they were refining strategy,” Oral recalls.

Since taking the CIO reins in mid-September2009, Oral has deepened that interaction as partof what he calls the “key theme” of aligning IT tobusiness strategies and objectives and deliver-ing on them as expediently as possible. Resultsof that focus include an increase in IT invest-ments in support of specialty lines, improve-ments in managing underwriting risk and theaddition of capabilities that make underwritersmore effective in their interactions with distrib-utors in the field, according to Oral.

If there is an even greater theme animatingOral’s tenure, it is the message to employees,distributors and end customers that CNA isreinvesting in the business. “We’re not lookingto be more efficient and effective simply to postimprovements to the bottom line. If we save amillion bucks, we want to invest that in futureIT capabilities to enable the business to be moreeffective in the marketplace,” he comments.

“We intend to invest in the business, andthat is reflected in our IT budget,” Oral adds.“We have increased budget from 2008 to 2009,and more so from 2009 to 2010 as a result ofsome of the efficiencies we’ve obtained.”

To support a strategy of reinvestment Oral is

developing road maps that delineate what workwill be done to enable improved businessprocesses on an ongoing basis. “We have three-to five-year plans that reinforce that we want totake more of an enterprise view,” he elaborates.“We want to make sure we clearly articulate tothe business where we want to go together.”

Single Platform StrategyAmong the enterprisewide improvements Oralis pursuing is standardization on single plat-forms, including CNA’s Guidewire PolicyCenter(San Mateo, Calif.) policy administration sys-tem. The carrier still has multiple policy adminplatforms, Oral concedes. But, he says, it ismaking significant progress toward consolida-tion. “I hesitate to identify a finish date, butwe’re holding our feet to the fire to standardizeon a go-forward basis,” Oral comments. “Stan-dardization will be critical for us, so we’ll investin spaces that are amenable to that approach.”

In addition to consolidating its policy admin-istration environment, CNA has standardized onGuidewire’s ClaimCenter as a part of a claimstransformation effort. The carrier has also stan-dardized its financial systems on Oracle’s(Redwood Shores, Calif.) PeopleSoft Suite.

And analytics will remain a major invest-ment area for CNA, according to Oral. “Thatarea is critical to us, particularly with regardto applications in distribution and decision-support for our underwriters,” he explains.“Most of our solutions in the analytics area arehomegrown, but we have leveraged intellectu-al property from Deloitte [New York] and exe-cution capabilities from Capgemini. We havealso enjoyed significant involvement in thisregard from offshore resources from partnerssuch as Tata Consultancy Services [Mumbai]and Syntel [Troy, Mich.].”

Oral adds that he also wants to drive inter-nal development of IT leadership. “I havealways been interested in how we can investin people in such a way that we can producethe next generation of leaders organically, andthus be prepared for the next set of challengeswithout having to go out into the industry tofind them,” he says. ■

R■ By Anthony O’Donnell ■

CNA CIO RAY ORAL IS DIRECTING INCREASED IT SPENDING TO AREAS SUCH AS SYSTEMS CONSOLIDATION AND ANALYTICS FOR DISTRIBUTION AND UNDERWRITING DECISION SUPPORT.

Getting IT on Track

NamesInTheNews

“If we save a million bucks, we

want to investthat in future

IT capabilities to enable the

business to bemore effective in

the marketplace.”—RAY ORAL, CNA

insurance technology outlook

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