technology in insurance 1

1Technology In Insurance

INTRODUCTION

Insurance, in law and economics, is a form of risk management primarily used to hedge against

the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss,

from one entity to another, in exchange for a premium, and can be thought of as a guaranteed

small loss to prevent a large, possibly devastating loss. An insurer is a company selling the

insurance; an insured is the person or entity buying the insurance. The insurance rate is a factor

used to determine the amount to be charged for a certain amount of insurance coverage, called

the premium. Risk management, the practice of appraising and controlling risk, has evolved as a

discrete field of study and practice.

The developments in IT are the working wonders in all the fields of activity. It has become

possible to send and receive information almost instantaneously. If circulars do not reach the

agents on time or doubts are not cleared quickly, or the agent does not have details of the new

plans announced in the press, the agent may face awkward situation with the prospects.

These problems can be totally avoided with the use of IT. Insures traditionally have been quickly

to adapt latest advances in the technology. This is happening in the areas of IT as well.

The extent of IT application will vary between insures. The information technology has always

played a very important role in the operations of every life insurance company. In fact of all the

business organizations in the service sector, the life insurance companies were the first to

adopt ‘MECHANIZATION’ as an inalienable part of their operation all over the world. This

becomes necessary because of two important reasons namely:

1. The nature of services to be rendered to the policyholders.

2. The need to evaluate the liabilities under the policies in vogue at the time of valuation.

Thakur College of Science & Commerce


Evolution of Policy Bond

The first service rendered by a life insurance company to the policyholder is the issue of policy

bond. In the olden days, every policyholder was ‘Narrative type’. All the policyholder

documents and conditions applicable had to be typed out separately. But the number of policy

sold was limited: it was possible to continue that method. But as the business grew, it became

humanly impossible to continue that method of preparation of policy bonds. Hence, the life

insurance companies switched over to ‘schedule type’ of the policy documents. Here the form

of policy bond was standardized and as most of the condition and privileges were similar, pre-

printed stationery was prepared. The only work left was to fill up the details of each individual

policy, viz. policy number, plan and period of assurance, sum assured, mode of payments of

premiums, installment premium, date of last payment of premium, date of maturity of the

policy, age and whether admitted or not, name address of the policyholder, name of the

nominee, etc. In order to complete the schedule of the policy bond with these particulars,

addressograph machines were introduced. Policy particulars were embossed on Zinc or

Aluminum plates and these plates were used to print the particulars in the schedule part of the

pre- printed policy bonds. These plates were then used to print advance premium and default

notices, premium receipts with counterfoils and final lapse intimations sent to the

policyholders. The companies also had ‘Unit Record Machines’ otherwise called ‘Power Samas

Machines’ which were operated using punch cards. These were parallel records in which policy

particulars were punched in the prescribed fields.



There were two types of cards, namely:

1. Premium Master Cards

Premium Master Cards were utilized to account for the premiums received and then for

generating lists of lapsed policies.

2. Valuation Cards

Valuation Cards were prepared to be utilized for the valuation of Liabilities under the policies.

There was one-on-one correspondence between the adrema plates and premium master cards.

With the advent of the micro processors, the addressograph machines along with the adrema

plates and the ‘ unit record machines’ along with the premium master cards became redundant

and went out of use. Both were replaced by a new kind of record called ‘Policy Master’ for each

policy, integrating both adrema plate and the premium master cards. Apart from the ease with

which servicing of the policies could be rendered through micro processor operations, the

speed with which the same can be undertaken. The speed was necessary because of the

tremendous increase in the volume of the new business and much larger increase in the

number of service operations.



For example, LIC of India has about 13 Crore of policies. Assuming that 20 % of these are:

Under salary savings scheme, i.e. about 2.4 crore, and another 20 % in paid up condition, there

remain approximately 8 crore policies under which premiums are received by yearly, half-yearly

or quarterly. Usually, 50% are under quarterly, about 20% under yearly and 30% under half-

yearly mode of payments, i.e. Rs 1.6 crore under yearly, 2.4 crore under half-yearly and Rs 4

crore under quarterly modes. The number of premiums accounting transactions during a year

will therefore be as under-

Duration Amount

Yearly 1.6 crore

Half-yearly (2.4 x 2) 4.8 crore

Quarterly (4.0 x 4) 16.0 crore

Total 22.4 crore

Thus, in one year , the number of transaction in respect of the premium payments alone for the

organization is Rs. 22.4 crore — a huge and stupendous task indeed without the fast operating

computers; it will impossible task to manage transactions such as magnitude. In addition, there

are many other transactions to be handled. Underwriting of proposals for the life insurance

became standardized because of universal adoption of ‘Numerical Rating Method’. Thus, “The

use of IT and especially knowledge-based systems in underwriting has developed through

generations of systems, which have progressively increased in complexity.”

• First Generation: Screening Systems



These were developed by larger companies in the 1970’s to decrease general expenses. They

allowed for the entry of the information from the application and screened out or accepted

clean non-medical cases which were previously handled by the manual jet screening units. The

remaining cases were referred to the underwriters.

• Second Generation: Information Display Systems

These appeared in mid 1980’s. They were design to save the underwriter’s time and thereby

improve the productivity. Information display systems allows the underwriter automated

access to various sources of information, such as underwriting manuals , medical terminology,

lists of medications and other underwriting guidelines. These systems replace the need for

multiple volumes of handbooks. They allow rapid success to the information that an

underwriter needs.

•Third Generation: Initial Underwriting System.

These systems were developed to improve the service to the field by approving some cases

automatically and eliminating cases not needing review by an underwriter. Because they

require complex knowledge-based systems for their processing, they have only been available

for the past few years.

Initial underwriting system extend the capability of the first generation systems and go beyond

screening to identify underwriting problems, automatically underwrite some cases, and pre —



process other cases for underwriters by ordering information for cause’ such attending

physician statements. The advanced third generations systems can also do initial underwriting

with the requirements such as medical examinations, inspection reports and laboratory test

results. Some can even do discrepancy processing.

• Fourth Generation: knowledge Decision Assistance Tools

This is relatively a new system which provides underwriters with the knowledge — based

systems to underwrite complex impairments and to help them to manage their administrative

workload. They have been designed to enhance the risk selection process. Their use by the

underwriters can help them to manage the mortality expenses by applying consistency to the

underwriting process.

• Fifth Generation: Total Underwriting System

The fifth of underwriting system encompasses and surpasses the previous system. They

integrate all the components discussed above into single system: they also include a

management information system for the entire process. This is essence of the underwriter

work, which as discussed above, would be integrated into the entire administrative flow for its

greatest impact.

Components of a Total Underwriting System:



A total underwriting System needs to address the entire decision making process of

underwriting which starts at the times an application is completed and does not end until a

policy is issued. The system needs multiple components for each of the essential functions.

Initial Data Entry

This is where information from the application is entered into the system depending upon the

specification of the company and its field force; data may be entered from an agent’s laptop-

computer, at a regional marketing office or at the home office. Information from the agents

report, requirements ordered in the field and MIB [Medical Information Bureau] information

could also be entered for processing

Screening

The second component is screening. This involves taking applications and sorting them into two

groups; clean ones and those in need of further processing. This is fairly simple processing.

Screening checks that application need no future requirements , have all medical and non

medical questions answered properly, are within certain age and amount limits and have

acceptable finances and an appropriate beneficiary. Approved cases are sent directly to the

administration system

Initial Underwriting



Applications that are not approved by screening flow into the next component are called “initial

Underwriting”. This series of knowledge — based systems defines underwriting problems and

determines why the case required further processing. It checks for age and amount

requirement and examines the financial, non- medical and medical aspects of the case, as well

as the interaction among them. It decides if there is sufficient information to deal with the

problems, it has defined.

Requirement Processing

Since underwriting is an iterative process with information process with information from many

sources being reviewed at different times, a total underwriting system permits information to

be entered into the system directly from the provider or by home office personnel. Processing

requirements are similar to initial underwriting, expect that discrepancy processing is done by

comparing the details of the information from the application with those received late. In this

way, data from different sources is compared to uncover new problems. If there is significant

history or physical finding on the examination that was not admitted on the application, it

noted and the appropriate work-up is ordered. If no problem are discovered cases can

automatically approved without consulting an underwriter.

WORKFLOW TOOLS



Underwriters need certain tools to process their cases administratively. A total underwriting

system provides these. They include front- end tools, back-end tools, and status function. The

front end tools workflow tools keep track of cases, their requirement and underwriting

problems. The in- tray function accesses cases electronically assigned to underwriter. Rather

than getting a stack of file, the underwriter now deals with an electronic stack of case. For each

case their details underwriting problems and their actions. Other tools allow the underwriter to

manipulate, track and change the underwriting problems and requirement of case. There is also

an electronic notepad for the underwriter which can be integrated with an electronic mail

system for field communication. The back- end workflow tools assist in the final administrative

details of case: forms to be signed, post —issue requirement preparation, reporting of MIB

codes and the process of requesting reinsurance. The status function lets non- underwriter to

review the selected case information. An agent’s status reveals the data from the application,

as well as the requirement and whether they have been received.

Information Display

The information display component gives online access to underwriting guidelines with several

types of automated searches to improve the access of information. It also makes available

other underwriting references, such as medical and drug references.

Impairment Knowledge-Based Systems



The next component is the impairment underwriting knowledge-based systems. This program

deals with impairments such as high blood pressure, diabetes, cancer, respiratory disorders,

aviation and coronary heart disease. Their logic is patterned after the knowledge and thought

processes of expert MD’s and underwriters. Information is requested from the record and a

rating is suggested. If underwriters choose, these will guide them through the detailed

decisions needed to underwrite impaired cases.

Management Reporting

This component generates administrative and other reports on the decision made within the

system. The management from the database of information can create reports.

Benefits

Underwriting system has many benefits. For underwriting they limit the number of cases that

need to be reviewed, because the system is able to process them without intervention. In this

way the technology improves the work of underwriting by eliminating unnecessary routine

cases. Several companies have developed knowledge — based systems for this purpose and

have been very pleased with results. As an underwriting officer stated, “This gives the

underwriter to deal with more complex and time consuming cases.”



Furthermore, initial underwriting knowledge — based systems decrease the number of times a

case needs to be reviewed by an underwriter, because requirements are ordered and

processed by the system prior to the underwriter seeing the cases.

For the producer, service is greatly improved. This is possible because some application can be

approved by the system almost immediately, without having to be seen by an underwriter. One

company that has integrated this type of system with its field offices is able to electronically

approve applications in less than 15 minutes. Also, the sales process can be helped by

determining all requirements {both those required for age and amount and those necessary for

a specific cause} immediately so that producers do not have to contact an applicant a second or

third time for additional information.

Knowledge-based system can improve underwriter productivity in other ways with workflow

with workflow management tools. Although these system do not do any underwriting

themselves, they do manage these paperwork in the ordering and keeping track of

requirements. Such tools decrease the clerical work of underwriters and improve the workflow

in underwriting departments by eliminating unnecessary paperwork.

Apart from reducing underwriters work, knowledge-based systems can provide decision-

assistance tools in the risk classifications process. Impairment underwriting knowledge-based

system is sophisticated decision-support tools.



They assist in the determination of ratings by promoting the user for information and

correlating that information with underwriting guidelines and the programmed thought

processes of expert underwriters. They serve as an excellent training tool for the junior

underwriter and assist-experienced underwriter in very complex cases.

In addition to helping in the actual underwriting decisions making, knowledge — based system

can assist the underwriting manager with the overall underwriting process. Once information

has been entered into the knowledge based system, it becomes available for management

reporting and decision-making. This allows underwriting managers to follow the screening of

cases by the system, as well as the ordering of requirements and the rating of the impairments.

The decisions can be tracked according to agent, agency or underwriter so that underwriters

can interact better with the procedures with whom they work ; underwriting managers can also

more effectively manage the underwriters who report to them. Previously unavailable

management information tools are made ready available, is information on specific

underwriting decision making.



NEED FOR INFORMATION TECHNOLOGY IN THE INSURANCE SECTOR

The rapid innovation in the field of information and communication technology has posed

serious challenges for the insurance industry in India. The use and application of information

technology in wide variety of insurer’s operations has now become strategic in the sense that it

has direct impact on the productivity of resources, and a sweepening impact on reducing the

case of various activities.

With the arrival of private insurance players, the competition has become more intense and an

important role is being played by the insurance sector. Even though the use of information

technology is not new to the insurance sector, yet we may find tight compartmentalisation

regarding the use of information technology in various departments of the insurance

companies including the major players since last 50 years. The most visible of these

departments are accounting, policy issue and servicing, claim processing, sales management

etc. The innovations in information technology can be effectively utilized for the following

areas:

→

Therefore the imperative for all the insurers, especially LIC and GIC is to build up an efficient

interface between the various departments and segments. This would reduce the paper work,

improve efficiency of service delivery and provide competitive advantage to the insurance

companies.


Speedy and correct issuance of documents Expeditious disposal of claims Proper building of accounts and statistics

Quality Assurance & Efficiency


Application of IT

As awareness of quality service began growing among policyholders in India also, LIC of India

had to think of many applications of information technology. Up gradation of technology was

undertaken on a huge scale. All the 2050 branch offices, which were serving centers, were

equipped with computer systems. Training of employees also was organized on a large scale.

Several software packages for different servicing operations were introduced. A cash module

was introduced, operating with, the cashier, while sitting at his desk, is enable to print and issue

official receipts on the spot to the policyholders when they tender money towards premium,

the entire operation take a few minutes. A new business module was introduced which enable

even underwriting operations to be computerized. It brought a complete integration of all

activities connected with the processing of policy documents Similarly, loans and surrender

value module, policy revival module, claims module were also introduced. Now revival

quotations, a policy quotations or maturity claims intimation letters are generated on the

Computer. All these gave tremendous boost to the efficiency in rendering service to the

policyholders

Up gradation of technology also helped in another direction. Several reports which could be

used as MIS get generated for use by managers at all levels. This helps management to review

performance against prescribed indices and to take appropriate corrective actions where

necessary.

To bring out the revolutionary changes in communication to policyholders, several steps were

taken. Inter-Voice Response Systems have been introduced which policyholders ascertain

several types of information about their policy like policy status, premium position, loan

amount, maturity / next survival benefit due , accumulation of bonus , etc. over telephones

language in language of his choice. The policyholder can also get the information on fax. MAN is

installed in several cities, which enables policyholders to pay premiums or get their status

reports, revival, loan, surrender quotations in any of branches offices convenient to them in the

cities. Now, many of the cities with MAN are connected by WAN, which enables policyholders

to pay premium anywhere in the country. E-mail connections have been established in many of



the offices and internet connections has been given to all the divisional offices, all department

in all the zonal offices and central offices. A website {www.licinda.com} was set up to give

information on the Internet about the organization, products, service. The web pages has been

made interactive with the features like online Premium Calculation”, “On-line — Bonus

Calculation”, “On-line Forms” etc. The site includes features on ‘Frequently Asked Questions by

Non Resident Indians’. The corporation has also set up interactive touch screen based

multimedia Kiosks in prime location in the metros and major cities for dissemination of

information on the product and services.

The corporation has plans to redesign these kiosks to provide policy details and accept

premium payments. All these applications have definitely brought a great amount of

satisfaction to policyholders. The steps taken by LIC of India during the past 5 to 6 years are an

indication of the importance role that information technology can play in ensuring a very high

quality in the serving operations of a life insurance company.

Several private life insurance companies are also utilizing the latest technology available

including creating their own web sites. A few private web sites like ‘Bima online ‘also have been

established

Technology is the most important tool in another very important area of life insurance

functions. It is valuation. The process by which the values of various polices of insurance

existing at a point of time are obtained is called valuation’ of liabilities of an insurer was small,

policy values used to be calculated for individuals policies. But when the number of policies

runs into several lakh or crore, as a present it is extremely inconvenient to calculate the value of

each contract separately. Methods have, therefore, been devised to collect data for each plan

of insurance in a form suitable for valuation in groups having some common characteristic like

age, duration or term to run to maturity and like. Grouping is done only if there is sufficient

number of policies to make the group of a reasonable size. For a sufficient large life insurance

organization, this work is possible only through application of technology. It is a legal

requirement today in our country for a life insurance company to conduct an actuarial valuation

every year. This adds to importance of IT application.



With increasing complexity of products both life insurance and pension entering the market,

the field force, especially the agents needs a large support from the company represent. While

discussing life insurance program with potential customers, agents need sophisticated

information including benefits, comparisons, , needs and matching products , rates and impact

on the customer’s budget , returns, etc,. Like in Japan, life insurance companies in India may

also supply ‘Palm — Tops to their sales force.

This will be possible only through extension of concepts of information technology. Market

research is another area where information technology has a great role to play. Today’s, the

customer has become the center around the entire market revolves. The world is fast moving

towards market driven economy. Organizations, which were merely based on ‘sales concept’,

are eagerly aiming to convert themselves into marketing organizations’. Life insurance

companies which primarily deal with the financial needs of the people cannot ignore these

realities. The life insurance has become very dynamic. The needs, aspirations, attitudes, buying

behaviors, standards and quality of life are changing. The perceptions of what constitutes

standards and quality of life are changing. The perceptions of what constitutes standard of life

is also undergoing a metamorphosis. Different types of product are the need hour. The demand

is more for ‘flexible’ rather than ‘packaged’ products especially in the service market. To certain

its share and to improve it, there is no alternative for any life insurance company than to have a

continuous market research. The company should know the demographic changes taking place

in the society. They should know what is selling and where. They should know the pace of sales

on the day to day basis.



They should not only know the emerging customer profile but also the size of the market. All

these need a scientific market survey and research either done in house or outsourced. A

typical market survey report is appended which shows the enormity of the job. Without the

support of technology, this will be an impossible task for the company.



TECHNOLOGIES FOR INSURANCE

There has never been a time when the effective use of information technology has been more

crucial to the success of the insurance industry. The insurance markets are being revolutionised

by technology at a high speed pace. IT and software solutions, allowing cross-border trade to

become electronic and paperless, are increasingly on offer to importers, exporters, shipping

companies and financial institutions. Following technological advancements can really enhance

the performance of insurance companies.

Database Management Systems

The principles of tracking and measuring responses can pay off for the conventional insurance

industry. To find more clients, insurer needs to consider many factors, including cash value,

medium and competition. But the need to record and study the characteristics of persistency-

the length of time we retain policies, customers and agents is most important in insurance

companies.

In order to find out profitable combinations of households or clients, products and agents, a

database with five to ten years’ history is of immense importance. Such historical retention was

prohibitively expensive in the past. But clear advantages of new PC (Personal computer) and

RISC (Reduced Instruction Set Computing) technology gives companies power to keep tens of

millions of policies on a device with thousands of bytes of data per policy/client/agent.

Analyisng a 1O-year database is cost effective.

Reviewing the database provides information on how many clients have actually migrated not

just how many policies have lapsed or surrendered. Using database technology companies can

get a comprehensive, performance, loyalty, and lost opportunity.

Data Warehouse

Data warehousing technology is based on integrating a number of information systems into a

‘one stop shopping’ database to achieve vision of making company national in scope, but

regional in focus. Traditionally, the sale of policies and the claim settlement are two separate



areas for the insurance companies. Data warehousing allows managing by profit levels with an

integrated approach rather than by limiting losses. Data mining can be used as a means to

control costs and increase revenue resulting in enormous earning for effective users.

Decision Support Systems

The path of business applications of computers, computer based information systems (CBIS),

encompasses many stages including the very early applications like transactions processing

systems (TPS) followed by the management information systems (MIS). The computer

applications like decision support systems (DSS), expert systems (ES) and executive information

systems (EIS) are still awaited in insurance business. Office automation (OAS) happens to be a

continuously ongoing, dynamic process for any business. Such decision support systems will

provide the insurance managers with a tool for customised products and services that are more

in line with what customers want.

Group Linking Software

Group-linking software enables sharing of information arid partieular1v suits document heavy

insurance business. Tracking of policy application shows how information that is input and

accessed from a number of locations can increase efficiency.

Imaging and Workflow Technologies

The proposal forms may be scanned into an imaging system. Data may be extracted for update

to computer and for automated underwriting workflow may be implemented.

Mapping

Insurers to meet different needs, such as identifying loss prone areas or geographic claim

analysis, can use Mapping technology. It helps the insurer to analyse the extent of its network

i.e. the insurer can determine whether it has too many or too few agency force in a particular

area.



Call Centre Technology

Good customer service is a crucial element for gaining, maintaining and retaining profitable

customers. Call centre concept based on interactive voice response services (IVRS) is gaining

importance in this aspect.

Video Linking

A video linking facility between two remote units of an insurance company or between an

insurer and a broker allows underwriters at one place and brokers at other unit to discuss risk

inherent in a proposal face to face.

Cat Models

Catastrophic models use data from the recent natural disasters that helps develop more

predictions of insurers’ property exposures in future disasters. Using this data curious “what-if’

scenarios of probable maximum loss (PML) using the best estimate available at an insurer’s

exposures are tested. Finally an underwriting policy that limits the company’s exposure to

catastrophic losses is implemented.

Intranet is the network connecting different offices of the same business to permit the internal

data within the business. Extranet is a network allowing the business to communicate with

business partners like suppliers, vendors, banners, regulations etc. on the electronic channel.

Internet is a global network of many computer networks. Any user, who would like to exchange

some information with other user at a remote location, can log into the computer of Internet

provider via modem or an Internet access CPU (IAC). The Internet and online service providers

are providing opportunities to create new forums that can be utilised by everyone worldwide.

Insurers can browse through many useful sites on the Internet.



Technology & Cyber Insurance in India

The opening up of the Insurance industry in India would boost competition, facilitate

technology transfer and lead to new products, better customer service, deeper and wider

insurance coverage and many more opportunities for employment. As new private sector

entrants enter into India, opportunities in the insurance industry are up for grabs. One

important aspect of the insurance industry, which is gaining prominence tile world over, is the

development of technology and cyber-insurance strategies. Cyberspace is a risky place.

Companies conducting business over the internet are exposed to a variety of new,

unpredictable and serious exposures such as servers crashing, computer viruses, destruction of

data, e-mails disappearing and attack from hackers for which there are few precedents in terms

of risk management and even less actual insurance coverage. Cyberspace presents unique

challenges to risk managers for several reasons; the foremost being that there is no Standard

risk profile.

The wide variety of internet-related businesses, such as ISP’s, content aggregators, certification

authorities, online merchants and software developers, all contribute to the difficulty of

developing a single risk profile. Enacting appropriate insurance policies for ensuring cover for

security issues and intellectual property rights issues is vital.

For safe business transaction, what is needed is a secure legal environment and while

legislation in India is providing this environment with the enacting of laws dealing with the

Internet, Insurance companies in India should provide comprehensive protection policies for a

business against web-related risks, such as hackers and viruses, credit card and employee fraud,

business interruption losses, and legal action. Essentially, the policy can fill the gaps in coverage

that have opened up between standard insurance policies due to the fact the way business is

done has changed.

Intellectual property infringements: content providers who use content of others without

permission can trigger these risks.



Errors and Omissions liability: these risks are typically triggered by the programmers, web hosts

& web-designers, who, through negligence in their work cause injury/damage to a third party.

Personal injury & advertising Liability: As e-commerce grows, these risks can be triggered by

worldwide web sites, and trade publishers who publish illegal content or content which may be

constructed as libel.

Director’s liability: Directors and officers often face the risk of litigation due to numbers of

factors, such as consumer protection laws, securities related laws, and certain provisions in the

corporate laws that place additional responsibilities on directors.

Employee liability: These risks would arise from the breach of confidentiality and rights of

privacy arising out of confidential client information stored on a particular system or website. In

addition, employee can initiate sexual harassment charges from an employee due to disturbing

e-mail content. Legal fees: Fees incurred for litigation arising out of various claims, such as

intellectual property. Many businesses on the internet mistakenly think their internet- related

exposures are covered by their existing policies.



IT APPLICATIONS IN FUNCTIONAL AREAS

Even though the information technology has wide application in all the spheres of the insurance

business, yet following are the most important ones in respective functional areas:

Marketing

The scope for use of Information Technology in marketing function is tremendous. It may start

from the consumer acquaintance to an insurance product to claims settlement or further selling

of new products or developing consumers for the products.

Information technology can be integrated with almost all the P’s of marketing. It may help in

formulation and implementation of various marketing strategies including pricing, promotion

and customisation strategies. Some of these areas are discussed below:

Consumer Awareness

The use of Information Technology may be path breaking for the insurance companies since

conventionally the awareness of the insurance products in India is low. With the use of Internet

the information about the products and pricing policies can be made available to the public in

few seconds and much transparency in operations can be established. There are numerous

websites available which can help the prospective customers to compare the insurance

products of various issuers and decide the product suited to his needs. Also, the information

about the new’ products changes in the existing ones and of course, the information on various

discounts and incentives can be provided at a much faster rate and lower cost.

Customer Services

The insurance being a service needs high concerns in terms of services. Customer service

requires maximum attention and should span the entire gamut of activities in the purchase of a

product i.e. right from the dissemination of information, documentation to policy

administration and claim settlement. The service quality standards of the new private insurance

players have posed a threat to the-then giants viz. the LIC and GJC.



The investments in the personnel and knowledge systems have helped private player’s

companies build significant domain expertise. The emerging areas of IT applications are:

(1) Market Research

(2) Consumers targeting and segmentation

(3) Customisations of products

(4) Easy procedures like premium payments, claims settlements, tracking of brokers and agents

(5) Complaints management! grievance handling

(6) Intermediary analysis

Finance

Information technology can be effectively used for internal management viz. Accounting,

treasury management, financial performance reporting etc. and as well as in resource

mobilisation, portfolio management, investment planning etc.

Human Resource Management

Application of IT in Human Resource Management is obvious. It can be effectively utilised in: (1)

recruitment and selection, (2) training, (3) performance appraisal, (4) promotions, transfers and

dismissals, (5) valuations etc.

Research and Development

R&D has been made an easy task with the increasing use of IT. Surveys and research on market

potential, analysis of markets, tracking with international norms and developments are the

profound areas of IT applications.



Impact of Technology on Insurers

Any new adoption needs time to get acquainted with the users until they gain enough

confidence & knowledge in that system. Recent studies reveal that consumers lack passion for

insurance because of its complexity, but despite these push backs, a growing number of

insurers are intrigued by the significant cost saving & customer-retention benefits to be gained

through online self-service. Although carriers think that by encouraging insurers to do

transactions by online services, which would reduce operational costs vastly, they are very

cynical of investing in web technology with dot-corn collapse.

The trick lies in educating insurers about the concept and benefits of eservices in this sector.

Driving client to initial online self-service experience into something more interactive by call

services that would involve human interactions will certainly have a greater impact. This

balanced approach is how most insurers are enabling online self-service that not only make

sense for policyholders, but also provides support for intermediaries and agents. The main

challenge for any health company’s website would be bringing all sections of people to view

their site.

They should show some positive incentives to bring customers to their websites. Online

services have own advantages like accessibility of information 24/7, visualization of

information, providing interactive plan finder tools, adding useful links to the websites, live chat

technologies etc. An online activity helps to give necessary knowledge to consumers, which is

very positive, because it implies that when people learn more they establish a deeper

relationship and a broader dialogue with the carrier. Agents and brokers also enjoy the

efficiencies that come with writing new businesses and servicing their customers on websites.

About 55% to 60% of customers take booklets electronically. In order to enable efficient online

self-service functions, companies typically have to update their legacy systems.

Despite the current limits to online self-service, as the Internet continues to gain acceptance,

customers probably will become more open for using it as a conduit for insurance services. In



the past year, the portion of insurers offering customers service websites has been growing

dramatically.



INTRDUCTION

Losses due to insurance fraud and abuse affect every business and every risk manager. The

stakes are high: according to the Insurance Information Institute, 10% of claims payments are

fraudulent, resulting in $24 billion dollars in losses each year. Worker’s compensation claims

alone are responsible for about $5 billion in losses each year. Unfortunately, most of this fraud

is never detected, or it is discovered after claims are paid when recovery of these lost dollars is

both expensive to do and unlikely to happen.

Insurance fraud detection has taken a giant step forward with the introduction of the same

sophisticated technology already used by most banks and credit card companies to stop fraud,

saving companies in these sectors billions of dollars each year and reducing fraud by as much as

50 %. However, as with any new technology, considerable confusion exits as to which types of

systems are effective for which purposes. Focusing on claimant fraud in insurance, this paper

will identify types of technology utilized in fraud detection, their scope and limitations, to help

risk managers choose appropriate technology for their needs. Fraud Detection And Technology

it reality, no one technology delivers a complete solution for fraud detection. A complete

solution is the result of the intelligent combination of several technologies, most of which are

not particularly effective if used alone.

The challenges of addressing the fraud and abuse problem- and the different technologies that

can be used for this purpose- can perhaps best be understood through a framework of

detection and review. While detection is the process of identifying and prioritizing suspects

from the available data, review entails confirmation of fraudulent/abusive activity and the

process of taking corrective actions such as blocking of payments, recoupment of paid dollars

and prosecution.



The variety of technologies that can be employed can perhaps be best understood by assessing

their contribution in improving either or both of these two processes. To date, primary

emphasis has been on review side, with a focus on techniques for surveillance, investigation

and prosecution. Many technological tools, such as those for ad- hoc querying or viewing of

activity, have been designed to aid in the review of potentially fraudulent claims. However, the

challenging task of detection — effectively identifying suspects in the first place- has received

less attention and currently offers the greatest opportunity for benefit if addressed in a

comprehensive fashion.



DETECTION & REVIEW

The mission is to find insurance fraud and abuse; once we do that, we can take a variety of

actions to recover payments already made and prevent future in appropriate payments. Our

starting point is the mountain of historical transaction data (i.e. claims master-file information,

payment transactions, medical/payment detail, policy information, etc).

Detection

Detection is the first step and is complicated by a host of technical challenges. Review is the

second step and requires giving human experts the information they need to confirm fraud and

abuse. Detection is a statistical game with the goal of improving the odds of finding the target.

The process is analogous to fishing for a rare fish in the ocean. Without the right tools, we are

left to fish the endless sea of legitimate claims for our rare fraudulent catch. Not surprisingly, a

tremendous amount of time and effort can be spent to identify a single case of fraud.

The job of a detection system is to filter the Entire Ocean and scoop out a small pond

containing a significant fraction of the total fraud so that the ratio of fraud to non-fraud is much

more in our favor than it was in the “ocean”. Fishing in a well-stocked pond translates into

substantial savings because we can use the system to focus expensive human expertise on

reviewing those claims that are most likely to pay off (in settlements, averted future fraud and

abuse or successful prosecution). We stop wasting effort reviewing false leads, and we prioritize

effort to inspect the most important cases first.

The effectiveness of a detection system can be quantified using the following two metrics:

• Detection-Rate (the percentage of total fraud isolated in the pool of suspects)

• False-Positive-Rate (the ratio of legitimate to fraudulent entities in the pool of suspects)



Review

The review process gathers the evidence that human experts need to confirm fraud and abuse.

Because of the complexity of detecting provider fraud and abuse, no system can be 100%

accurate in selecting fraudulent claims. Once the detection system has generated a pool of

suspects, expert claims adjuster or fraud investigator are needed to review suspects, conduct

the appropriate investigation and bring the case to closure. The experts may use technology to

help them navigate through, visualize or analyze the detailed data behind a case. Detection can

be linked to the “front end” of the fraud-fighting process, while review is analogous to the

“back end”.

Many tools offered to assist in the fight against fraud and abuse, such as those allowing for the

review process. Other technologies, such as those involving link-analysis (looking at the activity

of individuals coming in contact with a particular individual) are also most useful after a suspect

has been identified. While these techniques can be important, for example investigating rings

to which given suspect initially come from? Further, more the reality is that most fraud and

abuse is opportunistic and does not involve elaborate rings. A detection system is necessary to

uncover suspicious activity in the first place.

Most approaches to employ a manual process dependent on human intervention-a claims

adjuster spotting unusual activity in a claim or a whistle-blower (e.g. a co-worker disgruntled ex-

spouse) calling 1800 fraud line. In some cases, simple red-flag rules are used to assist in the

identification of potentially abusive activity or simple statistical tools that profile peer groups

and use standard deviations to identify outliners.

These are good first steps, but there is much room for improvement. There is a great potential

for insurance organizations to identify more fraud and abuse and identify it closer to its onset.

Because detection has received far less attention than review, this paper will focus on the

application of technology to the detection problem.



APPROACHES TO DETECTION

Two fundamental approaches to detection are ruled-based and model-based. The nature of

fraud and a comparison of these two approaches can be better understood by using the

analogy of the amoeba.

Using Rules to detect fraud and abuse

Rules (or red-flags) are often developed to identify “suspect” claims. For example, neck injuries

are more likely to be fraudulent than head injuries. Hence, a “rule” may identify neck injury

claims as suspect. However, even though neck claims have a higher risk of fraud than head

claims, it is still the case that far more neck claims are valid than are fraudulent, so the rule may

be refined to future restrict the claims identified as suspect (e.g. an employee on the job for

less than one year).

In terms of the amoeba analogy, the boundaries of the regions defined by rules(shown as

squares in the diagram below) are very simple compared to the boundaries of the amoeba.

Usually, a rule has some overlap with the amoeba but also has some area outside the amoeba.

A tremendous number of rules are required to cover the amoeba and fill its multi-dimensional

space.

In actuality, rules-based systems are most beneficial to find evidence, not detect suspicious

claims. This means rule-based technology is effective as a tool for review, but not effective

enough for pure detection to summarize rule-based technology.



NEURAL NETWORK TECHNOLOGY

Within supervised or unsupervised models, a variety of technologies are available. Amongst the

most powerful are neural networks. Humans cannot simultaneously consider more than a

handful of variables. Neural networks provide an effective tool for shifting through large

amounts of data to identify those patterns- comprised of interactions involving multiple

variables- most indicative of fraud. In a supervised model can consider hundreds of variables in

developing a score through a learning process of looking at known historical examples of

“good” claims and “bad” claims.

The result is a model that can recognize the highly complex and subtle differences between

“good” and “bad” patterns of behavior.

In an unsupervised setting, a neural network can characterize complex behavior patterns to

identify those claims that are most similar to each other, as well as claims that are most

unusual.

Traditionally statistical methods (for example, regression) can in theory, produce models that

are just as accurate as those produced using neural network technology. However, because

such methods rely upon human experts (typically statisticians) to explicitly determine the

complex data relationships, it is nearly impossible for such systems to match the predictive

power of a neural network model. Furthermore, maintenance of traditional statistical models is

costly.



TECHNICAL CHALLENGES

A host of tech accompanies the task of insurance fraud and abuse detection. An abusive

solution to the problem requires a comprehensive approach enabled by a variety of

technologies that addresses these technical challenges head-on. Some of these design issues

include;

• Ongoing reassessment of fraud risk

Because fraud may not exist at the time the claim is submitted, or because evidence of abuse

may not yet be apparent, a system must each claim over and over on an ongoing basis.

• Understanding raw data

The starting point is the “raw mountain of data”. A thorough understanding of this data

requires careful analysis and domain expertise. Furthermore regardless of what technologies

are employed, careful engineering is required to address issues of data being messy. missing or

standardized

• Behavior from ongoing transactional data

Characterizing claim activity involves the summarization of all transactional data (e.g. payments

or medical service details). This summarization must not lose key aspects of activity.

• Complex pattern in data

Identifying which claims are most suspicious requires a comprehensive analysis of many

different features characterizing the claim and its activity. A detection system must be able

recognize those patterns of behavior most indicative of fraud.

• Limited examples of confirmed fraudulent claims

In many cases, only a small number of known examples of fraud may exist in the historical data.

One must be able to handle such situations when developing the detection system.



• Prioritization of suspects

In order to match work level to staffing constraints, which may be different for different

customers and may vary over time, a detection system must allow for prioritization of suspects.

Scoring models provide a rank ordering of all suspects so that attention can be focused on

those deemed most suspicious.

• Effective use of detection results

In order to effectively use the detection system’s results, explanations for what makes a claim

look suspicious should be provided, strategies for effective workflow assignment should be

determined (e.g., match resources with suspects that are most beneficial to review) and tools

to review the results should be available (these may already exist).

• System Maintenance

The system performance must not deteriorate due to changing patterns of activity overtime.

Because neural network models are built from data and automatically learn complex patterns

within the data, they can be efficiently redeveloped. Indeed, as more examples of abuse

become known, model performance can be expected to improve over time.



INTERNET & INTRANET

The Internet is a worldwide system, accessible through computers. Information travels through

the internet at incredible speeds. It cuts across national & international boundaries. While the

internet allows access for anybody from anywhere, the internet is an in-house network,

working on the same principle. The difference is similar to the difference between a national

newspaper & in-house newsmagazine, which is for private circulation.

If an insurer has an intranet system, the information in the intranet will be available only to its

offices & personal. The policyholders will not be able to access the data in the intranet.

Circulars meant for internal circulation can be posted on the intranet & everybody will have

immediate access to it, however far away he may be located. In the intranet also, it is possible

to restrict some information to certain categories of persons, who will be identified through

passwords.

Both internet & intranet enables users to do the following at any time (24 hours, 365 days)

Send & receive letters, which are called e-mail. Every person will have an “e-mail id”,

which is his address in the net.

Search, read & retrieve data, files, and pictures.

Buy & sell of policy Benefits to Agents

If the insurer has an intranet, the agent can, sitting at his place of work, be attending the

insurer’s office, making enquiries about status of proposals or claims or discussing with any

other agent, for clarification or advice, whenever he wants to do it. The physical distance

between the agent & the office will not be of any consequences at all. The benefits to agents

will be:

He can receive all circulars & instructions issued by any office. All delays on account of postal

transmission, being forwarded from one level to another, dispatch department absence of

peons, wrong addresses, misplaced through oversight, lost in transit etc., are avoided.



Any doubts with regard to proposal, benefit, premium, taxation, medical examination,

insurability etc., can be discussed & got clarified directly from the person concerned.

Communications to & from the office will be immediate through e-mail & at a low cost.

Benefits to PolicyholderslProspects:

Prospects can get benefit through the internet in the following ways- They can get details of the

various policies, the benefits there under, the premiums payable etc.,

• Prospects can get advice on the suitable insurance plan for themselves.

• Policyholders can get information with regard to the status of the policy, the premiums due,

the bonuses attached, the surrender values or loans available, revival possibilities, nearest

office for any further transactions.

• Premium can be paid without having to go to the office of the insurer, by direct debit to the

policyholder credit card or bank account

The LIC has included in its websites, for the benefit of the prospectus and the policyholder,

information to health issues



KISOKS

Kiosks are unmanned information centers, placed strategically at public places. They are called

Interactive Touch screen kiosks. A kiosk is a self- contained hardware & software to blend all

current media including graphics, video, text & quality sound. It consists of a touch sensor& a

monitor on which the sensor can be fitted. The user is expected to touch the relevant sensors,

according to the choices offered by the kiosks visually on the monitor. The kiosks then takes

him the required information or to transact the required business.

The LIC has installed kiosks in more than 100 locations covering its divisional headquarters. The

kiosks provide information on policy status, product information about all products including

group insurance products. These can he used by persons, who do not have their own

computers and cannot access the internet. They can be operated 24 hours a day and do not

require any supervision like the ATMs of banks.

The touch-screen kiosks were installed in some of the branch, divisional and zonal offices of LIC.

By this facility the customers can obtain information about LIC, its performance, schemes and

statuses of policies by the touch of the screen.

The kiosks are interactive and user-friendly. Such kiosks are also to be installed in bus and

railway stations and in busy thoroughfares of major towns and cities. In due course, payment of

premium will also be made by dropping cheques and DDs in drop-in boxes.



DATA COMPROMISE COVERAGE

The breach of personal data stored in business files and computers is a serious risk for any

company that controls the information. Customers and employees may become the victims of

identity theft and fraud. With so many incidents of data loss being reported, companies are

looking for solutions that include new insurance protection.

All companies are responsible for personal information. Even a small business may have data on

a large number of customers, clients and vendors. That information can be lost, stolen, or

inadvertently disclosed. But the result is the same—anxious victims, unexpected business costs

and damage to a company’s brand and reputation.

Laptop Thefts Increase Risks

The breach of personal information is a serious problem in the US. In the past two years alonc,

data breaches have affected approximately 100 million Americans, a consumer watch group

reports. Some people may have been affected more than once and not all of them were victims

of identity fraud, of course, but the growing number of data losses points out the continuing

exposure to consumers and businesses.

Personal data may be stolen from physical records, or obtained by fraud such as the sale of

information to a sham company It might be hacked from computers, mistakenly released or

published, even posted to a website. A key factor in many of the recent high profile data

breaches has been the theft or loss of laptop computers. ln fact, about a quarter of all reported

data breaches may involve missing laptops.

It’s not surprising since laptops are a target of thieves. Cyber Angel Security Solutions, a

national security technology firm, reports that 10% of all laptops are stolen in the first 12

months and 90% of those computers are never recovered. Half of the companies in the US had

their laptops stolen in the last year and almost 90% of all corporate crimes are linked to stolen

laptops.



Data Breaches Spur New Laws

To fight identity theft, 32 states have passed laws that require businesses to respond to the

breach of personal information under their control. Federal legislation is pending. Most of the

laws require businesses to warn victims about potential ID theft and fraud. In many cases, the

warning must he issued within days and include the news media. Businesses may have to pay to

monitor personal credit.

Even without a legal requirement, consumer sentiment is pressuring businesses to take

responsibility to safeguard personal information. They want victims to be notified and informed

about the scope of the damage. They also demand the company provide personal assistance

including identity restoration case management when a data breach occurs.

A data breach can seriously harm tie brand and a; eta business. Although it can be expensive to

notify and assist victims of a data breach, the risk of notifying people affected can be far worse.

In today’s environment, a business that experience data breach must protect itself from both

the risk to its reputation and the cost of providing services to those exposed to identity theft

and fraud.

Data Compromise Coverage Offers Protection

A new insurance product --- data compromise coverage --- us starting to appear in the market.

This commercial lines coverage addresses the issue of data breaches by helping a business or

institution respond. This is important since ID Analytics National Data Breach Analysis found

that early notification of breached personal information may significantly lower the rate of

misuse. The findings suggest that breach notification could serve as a deterrent to ID fraud.



Several Forms Now Available

At this time, there are a few data compromise coverage forms being offered. At least one

monoline form appears aimed at large accounts, and at least one packaged firm is designed for

middle marker and Main Street accounts. One of these combines first and third party coverage

and the other is first party only. With corporate managers citing data breaches as their No. 1

concern in a recent poll, data compromise should he an area of further development and

innovation, in the coming months.

Smaller Companies Can Be Vulnerable

Small businesses can find it most difficult to respond to the breach of personal information. Yet

it is particularly challenging to offer broad and affordable coverage for smaller businesses.

Unlike larger companies, they may not have the knowledge, staff and resources to inform and

protect potential victims. Smaller businesses might not recover as easily from the extra expense

and had publicity. They should look for data compromise coverage that will arrange and pay

for:

• The cost of notifying individuals;

• Legal reviews and forensic information technology exercises;

• Personal services for eligible insured such as a helpline, credit checks and case managers for

the victims of ID fraud.

Treating Claim Data Carefully

Data compromise coverage raises sensitive issues for insurance professionals as well. One is the

extreme sensitivity of claim data. How will a claim be adjusted? How much information do you

need? The personal information of potential identity theft victims can’t simply be faxed and

dropped inside an inbox. It requires special handling and careful security procedures so that

insurers are part of the solution, and not the problem.



Another issue is for the insurance industry to take action so that we are not fooled ourselves. It

can and does happen that insurance companies issue policies to people who are not who they

claim to be. Worse yet, insurers may claim payments to imposters. Identity verification is not

always easy, but our industry must take steps to protect personal information and prevent

claim-related identity fraud.

Insurance Professionals Can Help

It is difficult enough to keep up with developments. As technology continues to advance,

personal information becomes increasingly exposed and new coverage options for data

breaches are evolving. The pain of being an identity theft victim is driving public reaction to

data breach incidents. The insurance industry can help by taking good care of the data in its

own control, offering high quality services to ID theft victims and developing new insurance

programs for data breach exposures.



INSURANCE AND ELECTRONIC COMMERCE - E-INSURANCE

On a global basis, there is mad rush of companies willing to enable their business. E-insurance is

one of the growth areas in India. Enormous opportunities are being created by the Internet’s

new connectivity such as improving customer’s service, reducing cycle time, becoming more

cost effective, and selling goods, services, or information to an expanded global customer base.

As entire industries are being reshaped and rules for competition are changing, enterprises

need to rethink the strategic fundamentals of their business in order to be successful. Globally,

insurance on the net has lagged behind other financial service products such as banking and

brokerage. Of the total online users only 5% used insurance service online.

This lag was due to lack of relevant and adequate content. Traditional insurers, while leveraging

on new information technologies, have been slow to utilise the Internet as an alternative

distribution channel. All the largest insurers have been focused on static marketing presence

online, encompassing product information, FAQ’s and quotes. Only a few insurers have added

the ability to submit applications online. This lack of participation in the e-business revolution is

seen across lines. The insurance companies attribute two factors for the slow take off. First and

foremost, insurance is a product that is sold and not bought. The Internet is perceived to be a

buyer’s medium, with online customers able to search quickly and for the most competitive

prices and variety of products. Insurance is one product that cannot be easily commoditized.

The more personal the selling process, the greater the difficulty in using the net as a medium

for selling. Insurance is one product, which involves personalised selling. The process of

insurance sales requires a series of face-to-face interactions.

International Trends

The convergence effect of IT is being felt by the insurance industry as well in developed

countries. The insurance industry is expected to lose market share to banking and other

financial institutions. Customers today expect enhance levels of service due to increased

competition. This customer demand is likely to result in non-traditional access to specific



information. The global online insurance market is expected to achieve an exponential growth

in the near future.

The Gartner Group in a study conducted by them says that in a year 25% of all customer

contacts and enquiries for enterprises will come via the internet, e-mail and online forms.

Bancassurance customer service, which has been almost exclusively done via the telephone

(96% of all transactions), will become increasingly e-mail based in the next four years;

decreasing telephone related service by 28%.

In response to these trends in customer preference, insurers are mobilising their online sales

and customer account management capabilities. This move towards building Internet based

business solutions benefits the insured by providing greater flexibility, greater customisation of

information and improved customer service for the insurance company. This drastically reduces

the costs involved. Similarly, by essentially outsourcing administrative and cost intensive

processes such as policy administration to customers, the cost of administration and servicing

the insurance policy also decreases sharply.

E-Insurance in India

The intriguing question before all associated with the insurance industry is that will it be

possible for private companies or even public sector monoliths to sell insurance online in India

in the near future? Insurance companies will probably have to wait for Internet penetration to

increase and the still ambiguous e-commerce rules to take concrete form. However, what is not

debatable is that new private entrants will change the rules of the game for the Indian

insurance business, both in the life and the non- life segment, unfolding opportunities for

software engineers and professional agents.

To peep into the possibilities and opportunities emerging out of the integration of insurance

and information technology, various organisations have organised seminars and conferences in

the recent past to explore the possibilities of selling insurance on the Net and gauge the

opportunities for the growing Indian software industry.



According to T. Ramanan of Assocham, life insurers were among the first to go online with

informative content and features like actuarial calculators. However, according to him, they

have been relatively slow to embrace online commerce, which currently makes up about 1 per

cent of the total term life market. Only 12 per cent of insurance companies globally sell policies

online. Experts expect the percentage of term life sold over the Internet to increase from I per

cent to 15 per cent by 2003, which in monetary terms works out to $21 billion. Although

traditionally term life insurance has been sold through independent agents, the big shift will

become manifest sooner than later. And more importantly Indians cannot watch from the

sidelines as this paradigm shift in the insurance sector takes place. In the non-life sector,

automobile policies are popular over the Internet. Premium income, points out the paper, is

expected to rise to $18 billion from about $1 billion currently. The growth of global online

insurance business augurs well for the Indian IT sector. The exponential growth in the online

insurance business will unfold significant business opportunities for software

companies/consultants. The opportunities that rise out of this will be both global and local,

because new entrants will have to either fine tune or prepare customized packages for the

Indian market.

Online insurance will also help companies reduce costs and keep premiums low, a prerequisite

in a price sensitive market like India. The government, however, will have to address problems

relating to bandwidth on an urgent basis to make online insurance a reality in India. Other

major challenges to face Indian insurers will be to design and develop strategies for delivering

services to well segmented customers. The third challenge lies in developing the right

combination of customer segments and applicable distribution channel strategies.

Most Web sites offer contact numbers of their branch officers where we can get further details

of the products on offer. The Agent locator feature, available on maxnewyorklife.com,

iciciprulife.com and on bimaonline.com help one locate an insurance agent most accessible to

you based on a search facility. One would expect downloadable proposal forms on insurance

web sites, but these are missing in most cases. Only Iicindia.com seems to offer downloadable

proposal and claim forms for a few of the schemes.



Benefits of Electronic Insurance

E-insurance provides multiple benefits to the insurer and the existing and prospective insured:

• Information collected is better and cheaper

• Speed of response — Issuance of policy and settlement of claims is faster

• Provides new ways of doing business in competitive market

• Flexible pricing and customised services

• Global accessibility i.e. lapse of physical boundaries

• Increased sales without additional sales force

• Immediate premium collection and funds transfer

• Reduced cost per transaction

• 24x7 availability i.e. round the clock availability of information

• Real time knowledge base building

Major Factors Affecting E-insurance

• Growth of net: it is estimated that India would have about 150 million net users by 2010.

These figures represent a huge buying potential.

• Competition pressures: insurance companies because of competitive pressures would be

driven into Internet rather than a clear ROT justification.

• Customer: the availability of net-based services will be a huge factor for customer retention.

• Cross sells: when linked with other financial products, a portfolio approach to investment,

savings and risk coverage will increase cross sells and customer loyalty and retention.

• Costs: in the beginning c-insurance will be a cost factor rather than a profit driver, but in the

long run it will be a cost reducing factor.



E-Insurance Business Challenges

Electronic insurance will not only provide many benefits but will also pose business and

technological changes.

Business Challenges

• Disintermediation increases business: Study has shown that the cost of distribution decreases

with the increased value of connection. Products with relatively high fixed costs and low value

such as travel, credit or burial insurance are relatively expensive to produce. Customers pay a

high price per dollar of coverage for these products. The Internet allows the disintermediation

of this relatively high overhead for these low face value products. This means that prices can be

lowered and more insurance can be sold by reducing the transaction costs of the exchange.

• Reorganisation of companies-Virtual Companies: Many insurers will be prompted by the

opportunities presented by E-commerce to restructure the packaging of insurance services.

Insurance companies using c-commerce may re-engineer, outsource, and/or streamline their

management functions, or marketing and distribution arms. To more efficiently deliver these

services, some insurers will be able to reduce their significant investments in physical facilities

and certain personnel. E-commerce will enable independent agency insurers to more easily

adapt their distribution mechanism to market competition and expedite their transactions with

intermediaries.

• Insurance customers what do they want: Customers could get better and different service

through the Internet. It is possible to obtain quotes from a number of companies. In some

cases, the Internet provides rating agencies’ evaluation of insurers. The Internet and

outsourcing can provide additional cost savings to the consumer. Technology can bring the

customer closer to the insurance contract, by removing layers of inefficiencies. Consumers will

also obtain price comparisons for relatively generic contracts, such as life insurance and rates

for a standard set of auto insurance coverage for given vehicle and driver characteristics.

Consumers also could have access to internal records to see where their claims are in terms of

payment, when their next annuity payment is due, and how their mutual fund is performing.



This can be done without calling a burdensome voicemail system, being put on hold, or finding

a person who can give them the desired information efficiently.

• The Death of Insurance Agent: One of the reasons why insurers have been slow to use

electronic commerce could be the fear of swallowing up the agent’s business. The Internet does

not necessarily imply the death of the agent. Many insurers are examining their agent’s role in

the process and arc also developing direct contacts with the insured through their web

presence. Agents could enhance their advisory role to consumers as their paper and money

processing functions diminish.

Technological Challenges

One of the most prominent challenges of e-commerce is security. It is very evident that many

users are reluctant to do business on the Internet due to security reasons:

Database Security: The business database security is utmost important. This has to be

monitored by security of the web server and web access.

Web Server Security: Security policies should be defined as who is allowed access, nature of the

access and who authorises such access, etc.

Password sniffing: Protection against password sniffing is to avoid using plain text user names

and reusable passwords.

Network Scanning Programs: Automated tools should be used to scan your network. These

tools check for well-known security related bugs in network programs such as send mail and

FTPD.

Physical Security: One can ensure physical security by having an alarm system that calls the

police, having a key-lock on the computer power supply.



Web Access Security: Host based restrictions can be implemented using a firewall to block

incoming HTTP connections to a particular web server.

Transmission Security: Encryption is a key technology to ensure transaction security.

Privacy: Privacy is likely to be a growing concern as internet-based communications and

commerce increase, Designers and operators of web sites who disregard the privacy of users do

so at their own peril.



INFORMATION TECHNOLOGY AND LIC

LIC has been one of the pioneering organisations in India who introduced the leverage of

Information Technology in servicing and in their business. Data pertaining to almost 10 crone

policies is being held on computers in LIC. The computers were introduced in 1964 in LIC. Unit

Record Machines introduced in late 1950’s were phased out in 1980’s and replaced by

Microprocessors based computers in Branch and Divisional Offices for Back Office

Computerisation. Standardisation of Hardware and Software commenced in 1990’s. Standard

Computer Packages were developed and implemented for Ordinary and Salary Savings Scheme

(SSS) Policies.

Front End Operations

With a view to enhancing customer responsiveness and services, in July 1995, LIC started a

drive of On-line Service to policyholders and agents through computers which enables

policyholders to receive immediate policy status report, prompt acceptance of their premium

and get Revival Quotation, Loan Quotation on demand. Incorporating change of address can be

done on line. Quicker completion of proposals and dispatch of policy documents have become

a reality. All 2148 branches across the country have been covered under front-end operations.

So LIC claims that all its 100 divisional offices have achieved the distinction of 100% branch

computerisation. New payment related Modules pertaining to both ordinary and SSS policies

have been added to the Front End Package catering to Loan, Claims and Development Officers’

Appraisal to reduce time lag and ensure accuracy.

Metro Area Network

A Metropolitan Area Network, connecting 74 branches in Mumbai was commissioned in

November, 1997, enabling policyholders in Mumbai to pay their Premium or get their Status

Report. Surrender Value Quotation, Loan Quotation etc. from any branch in the city. The

System has been working successfully. More than 10,000 transactions are carried out over this

Network on any given working day. Such Networks have been implemented in other cities also.



Wide Area Network

All 7 Zonal Offices and all the VLN centres are connected through a Wide Area Network WAN).

This enables the customer to view his policy data and pay premium from cur branch of an MAN

city. As at May 2002, there were 91 centres in India with more than 1200 branches networked

under WAN.

Interactive Voice Response Systems (WRS)

IVRS, functional in 58 centres all over the country, enables customers to ring up LIC and receive

information (e.g. next premium due, Status, Loan Amount, Maturity payment due, Accumulated

Bonus etc.) about their policies on the telephone. This information could also be faxed on

demand to the customer.

Website

LIC’s website, www.licindia.com, displays information about LIC and its subsidiaries. LIC

(International) E.C., LIC (Nepal) Ltd., LIC Mutual Fund, LIC Housing Finance and their products.

The addresses/e-mail IDs of its Zonal Offices, Zonal Training Centres, Management

Development Centre, Overseas Branches, Divisional Offices and also all Branch Offices are also

provided. LIC has given its policyholders a unique facility to pay premiums through Internet

absolutely free and view their policy details on Internet premium payments.

Information Kiosks

LIC has set up Interactive Touch screen based Multimedia KIOSKS in prime locations in metros

and some major cities for dissemination information to general public on various products and

services offered. These KIOSKS, enable the users to provide policy details and accept premium

payments.

Info Centres

It has also set up call centres to provide information about our Products, Policy Services, Branch

addresses and other organisational information.



INSURANCE APPLICATIONS WITH ADOBE

Break free of paper-based processes

Insurance companies tell us that they are hindered by slow, paper-based processes. Agents

waste time and money shuffling forms, instead of closing business and prospecting for new

customers. Back-office burdens, such as re-keying data and handling huge volumes of mail,

further increase costs. As a result, customers are put off by frequent poor service, causing them

to look for other alternatives or abandon the process altogether.

The challenge is to find a way to streamline the application process—driving down costs while

helping to drive additional revenues and profits—but it hasn’t been easy.

Restricted by system silos and patchwork processes

If your company is like most carriers, you have legacy system silos and patchwork processes for

various product lines. This lack of integration creates islands of information, which necessitates

extensive manual handling and staff paperwork.

The resulting inefficiencies dramatically impact your organization’s ability to put the customer

first and efficiently meet the needs of policyholders and agents.

• Applications for new insurance take an hour or more to complete.

• Customers have to supply the same information repeatedly

• A seemingly endless stream of paper flows from desk to desk and department to

department, often back stepping more than once.

• Frequent data errors and broken process steps require time—time that costs you

money.

Studies have shown that paper-based processes are expensive—up to an estimated $150 to

print, scan, fax, copy mail, and process each insurance application. In addition, growing

regulatory requirements add to the burdens that your headquarters faces, forcing you to

update systems and disclosures to remain in compliance. All this leads to slower service,



unhappy customers, and dissatisfied agents and brokers—who just may decide to take their

business elsewhere.

Adobe can help remedy the situation. The Adobe solution for insurance application helps you

improve service while reducing costs, meeting policyholder needs, and increasing agent loyalty

—so you can dose more business.

Get faster, more accurate processing

The Adobe Intelligent Document Platform accommodates both paper forms and electronic

documents, simplifying the collection and sharing of information, and minimizing time-cons

tuning back-office tasks.

• Agents, customers, and call center representatives need to enter data only once.

• Renewal forms and other documents can be automatically populated, dramatically

reducing time-consuming and error-prone re-keying.

• Adobe Document Services simplify underwriting and risk appraisal by allowing ratings

and not to be made right on the form for review by all parties—without altering the

original document.

• Electronic distribution eliminates postal delays and costs, and improves response times

by eliminating back-office handling.

• Agents and brokers can present intelligent forms to clients—in an offline mode—by

using the free Adobe Reader.

• When wet signatures are required, you can print forms out and then easily revert back

to an intelligent, automated process while maintaining full integrity of the original form

data.

Build data validation and calculations into all application processes. Support for eXtensible

Markup Language (XML) and ACORD XML standards helps efficiently integrate this information

into your enterprise applications. Adobe Document Services also offer a flexible front end, so

you can adapt easily to the latest regulatory policies, to minimize the business disruption and

expense of compliance.



Beyond the wide range of benefits delivered by the solution, Adobe also partners with industry

leaders such as IBM and Documentum, so that you can extend Adobe supported insurance

solutions throughout your enterprise.



Adobe PDF: Key to streamlining the insurance application process

Adobe Portable Document Format (PDF) provides a secure, reliable way to distribute and

exchange documents and information. PDF files look like the original documents, offering

customers and agents the look of paper with the added efficiency of fillable forms. This

familiarity helps to increase the acceptance of your self-service channel and maintains better

consistency between online and offline processes. Multiple policyholder documents can be

dynamically converted and combined into a single Adobe PDF file, decreasing document

preparation time and expense, while ensuring higher quality packages. And since Adobe PDF

files are searchable, they are ideal for archiving and retrieval.

With free Adobe Reader software, your internal staff as well as independent brokers and agents

can access documents and forms as needed. Reviewers can easily add comments without

altering the original, and agents as well as customers can see and respond to these comments,

avoiding redundancy and saving cycles. Password protection and other built-in security features

can be added to control access and ensure data integrity at every step. This efficient workflow

translates into to faster reviews and underwriting, and improved service.

The Adobe solution for insurance application improves the quality of your service to agents,

brokers, and customers—making it easier for agents to sell more policies, decreasing

abandonment rates, and enhancing your profitability.

• The application process is simplified and back-office tasks are automated, improving

cycle time and reducing the costs of acquiring and servicing customers.

• Revenues increase because you and your agents and brokers can efficiently handle more

business.

• Your headquarters gains better control over costly, disruptive compliance issues.

• Personal information gathered from policyholders is safeguarded, ensuring privacy and

maintaining transaction integrity with customers and partners.

• To streamline the insurance application process and improve back-office efficiency, turn

to Adobe.



MICROSOFT AND THE INSURANCE INDUSTRY

For many drivers, the seemingly endless round of phone message and paper work that follow

traffic accident can make the job of resolving on insurance claim feel as damaging as the

accident itself. For insurance carriers auto claims processing which involves handling estimates

adjustments repairs billing, and more is no less time-consuming, expensive, and frustrating.

Today, innovative technologies from Microsoft are transforming from the way auto insurance

claims are processed. Based on the power of the Microsoft.NET framework these technologies

open the door of integrated IT system that link programs and applications built of any platform

and written in any language. Streamlining the flow of data and bringing new levels of efficiency

to the business of claim processing.

Process claims is a leading software provider to the insurance industry, offering a broad range

of property and casualty solution that span heavy equipment, commercial, personal and

specialty lines. A Microsoft certified partner, process claims deliver solutions that automate

solution that automate communication and information flow, and yield rapid return on

investment. By harnessing the power of Microsoft .NET framework and its own data

transformation technology and industry expertise, process claim solutions provide data

transformation an d mining, business intelligence, work flow management, assignment

automation, appraisal management and trading partner integration.

Last year, process claims facilitated settlement of $4 billion in claims. The issue of data

integration is critical for all parties involved in resolving auto insurance claims. In addition to

insurance companies there are companies that depend on data to provide rental car services,

supply parts, facilitate salvage processing, determine vehicle valuation, and more.



Process claims’ end to end material damage management systems provide the vital link

between all of these parties. Utilizing Microsoft visual studio, .NET, XML and web service

programmable application components that can be accessed over the internet with standard

web protocols-process claims enables its client to conduct business with greater speed and

efficiency. Typically, when a driver reports an accident, the carrier assigns an adjuster or refers

the driver to an authorized body shop. Because process claims uses XML it can take information

from any claim system and instantly route the assignment to the most appropriate appraiser.

After receiving the claim the appraiser downloads is it to an estimating application, writes the

estimates, adds digital photos, and sends the package back to the carrier through the process

claims browser-based application suite.

The ability to utilize XML and web services has established process claims as a market place

leader. Not only does the solution streamline claims processes. It also extent and enhances the

value of existing legacy system functionality through seamless integration with outside services.

And because legacy system can access this new functionality transparently, Training and

support costs are minimal. Process claims’ claims port system focus on areas of material

damage to reduce loss-adjustment expenses, increases efficiencies, and improve customer

satisfaction, and they are configured to meet the specific business requirements of individual

insures. Today, innovators are taking advantage of technologies like this to automate business

processes and transform insurance claim processing.



CONCLUSION

The technology in insurance has grown through their performance, restructuring policy and

their efficiency in providing the large amount of insurance services with the help of technology

as their technology as their tool.

The supporting technology require will be real time, rather than batch, longitudinal rather than

episodic; will require connectivity rather than be self contained; will be interactive; will rely on

large relational databases.

Today’s consumers do not like to wait. Insurance companies that are enabling to react to their

customer’s demands will lose market share to their competitors that can. The question now

facing insurance companies is no longer if they should take advantage of the internet, but now

should they do it. Should you adapt your existing products or create internet specific insurance

products and brands? Do you focus your efforts on distribution or service?

Thus the insurance services without technology will be like tea without sugar. Therefore both

need to be integrated in order to provide quality service & also to tap the insurance market.



BIBLIOGRAPHY

Books:

Insurance & Risk Management – Dr. P.K. Gupta

Technology & Insurance – ICFAI

Magazines:

The Windows Magazine

Insurance Journal

Websites:

Insurance & Technology – http://www.insurancetech.com

Network Magazine India – http://www.networkmagazineindia.com

Microsoft Corporation – http://www.mircosoft.com

Adobe Systems Incorporated – http://www.adobe.com

Wikipedia – http://www.wikipedia.com

How Stuff Works – http://www.howstuffworks.com


technology in insurance 1

Documents