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| Title: | Insurance Industry Conference |
|
| Moderator: | ICPSRV::DOVE |
|
| Created: | Thu Feb 18 1988 |
| Last Modified: | Wed Feb 05 1997 |
| Last Successful Update: | Fri Jun 06 1997 |
| Number of topics: | 136 |
| Total number of notes: | 551 |
55.0. "ACLI Trends & Predictions Report" by FOOZLE::BAKER () Thu Oct 27 1988 11:05
AMERICAN COUNCIL OF LIFE INSURERS
TRENDS AND PREDICTIONS REPORT 1988
INFORMATION TECHNOLOGIES
The American Council of Life Insurers is a highly prestigious Insurance
Industry Trade Association, headquartered in Washington DC. Its main mission
is "education" of the legislature (lobbying), but as one of its services to
the industry it runs a substantial research operation. Every year, the
research division publishes a Trends and Predictions report, on a subject of
critical interest to the insurance industry. Last year the report was on the
issue of underwriting AIDS risks, and the potential implications of the
epidemic for the industry. Copies of this report are sent to virtually every
CIO in the Industry.
This year the subject was Information Processing. As a real indication of the
credibility that Digital now has in the Insurance Industry, we were contacted
and invited to write that report, looking at the issue from the standpoint of
the insurance industry - rather than from the standpoint of a manufacturer.
It has now been published and at least 6000 copies distributed within the
industry.
As one of the elements of their program, ACLI creates a "Q&A" pamphlet which
summarizes some of the key points of the main report. The following is the
Q&A associated with the Trends & Predictions report on Information
Processing. It is likely that your customers have received either the report
or the Q&A. While there may be some disagreement with the points made in that
report, the fact that a member of Digital's staff was the author can be used
as evidence that Digital is now viewed by many as a knowledgeable and
credible player in the Insurance Industry market place.
A limited number of copies of the full report are available and may be
obtained through the Industry Field Team.
EXECUTIVE BRIEF
Q & A
________________________
________________________
ACLI Strategic Research Vol. 3 no. 4 September 1988
TAP REPORT: Latest Information Technologies Enable Change,
Growth For Life Insurance Companies
Developments in information technologies have taken on a new importance for
the life insurance industry. Decisions made today about information
technologies can affect the ability of each company to thrive in the financial
services world of tomorrow. This issue of Q & A is based on the latest TAP
Report: "Information Technologies: Strategic Opportunities for the Life
Insurance Industry." This TAP Report was prepared by John H. Baker of the
Digital Equipment Corporation. The views expressed here are those of the
author and do not necessarily reflect the view of ACLI.
Shrinking profit margins and non-competitive expense ratios are causing senior
executives to review both their present information services operations and
the time and resources needed to develop new information systems to give them
a competitive advantage. This report review some key issues faced by
information services executives and projects the changes that current and
future information technologies may have on life insurance companies.
..............................................................................
QUESTION: What is the greatest difference between past approaches to
information technology and current thinking?
ANSWER: In the past, information technology replaced humans performing
repetitive clerical tasks with electronic systems. In a
sense, we were just paving the cowpath, rather than
straightening its route. Today, technology actually
influences the structure and functioning of the company.
Fundamental decisions about computer systems have a major
impact on company structure and operation. They are basic
strategic decisions which affect product development and
marketing and which top management (including the CEO) must
grasp and direct.
...............................................................................
QUESTION: Information systems have become an ever growing expense, and
many senior executives question what the associated increase
in productivity and profitability has been. What is the
relationship of investment in information systems and
profitability?
ANSWER: A 1987 Life Office Management Association study of 40 life
companies reached the following conclusions about the effects
of capital investments in information technology on profits.
o The most profitable firms and the least profitable firms
differed in the proportion of non-interest operating
expenses they spent on technology. The most profitable
firms were more likely to spend a significantly higher
proportion of their non-interest operating expenses on
information technology than the least profitable.
o The most and the least profitable firms allocated their
information services technology expenses differently.
The most profitable firms allocated a significantly
higher percentage of the budget to application systems
analysis and/or programming. The least profitable firms
allocated a large percentage of their budget to hardware
costs.
The report concludes that "The extent to which insurance
companies understand the potential different economic effects
of information technology capital will be a key factor in
their ability to compete successfully."
The finding that the most profitable firms spent a higher
percent of their investment on systems development that on
hardware is significant and indicative of a major change in
the allocation of technology investments. Investments in
mainframe systems are declining, and investments in the lower
cost mini and personal computers are increasing. This change
is driven by a change in the technology, the lower
incremental investment required for small systems, the
increased availability of peer-to-peer networking and the
desirability of moving as much computational power as possible
to the end user.
.............................................................................
QUESTION: What are some of the major problems in the information systems
area facing life insurance companies today?
ANSWER: Many companies face limitations in bringing products
quickly to the marketplace because of the structure of their
present information systems. Most of the information systems
in use today were built to be contract-oriented and have
little or no ability to link to systems supporting other
products. These limitations of the back office systems are
now affecting the front office operations. As a result, over
the next five years, a massive retooling of the basic
administrative systems will be essential for many companies.
..............................................................................
QUESTION: What is the greatest effect of information technology on the
future shape of life insurance companies?
ANSWER: The greatest effect will be on integration of the
organization. An electronic network will facilitate the
sharing of ideas, information and resources. While a company
will be physically distributed, it can still operate as a
unified whole through the networked integration of all
functions and personnel. Electronic mail can connect everyone
on a peer basis and all information and services can be
immediately accessible. Thus, the organization can be both
dynamic on a micro level and coordinated on a macro level.
..............................................................................
QUESTION: Networking has become a buzzword in the information management
field. How is the structure of present information systems in
insurance companies related to the need for networking across
the company?
ANSWER: Since the late 1960's, networks have almost universally been
designed around the concept of distant terminal access to a
mainframe. Over time it became clear that networked terminals
were an ideal way to exchange information between peers, and
that to operate a business in the 21st century, all necessary
and appropriate information and services would have to be
available to anyone, anyplace, at any time. Peer-to-peer
networks, which provide these capabilities, have been
available for some time and companies are moving increasingly
to such networks.
.............................................................................
QUESTION: How will interaction with clients be changed by the use of new
information technologies?
ANSWER: Interaction with and support of the client will be the focus
of all front office operations. Systems will be designed to
provide service in many different settings with interfaces
tailored to the specific applications. For example, a
financial planning system that included expert systems
technology may have a number of different knowledge bases
depending on the specific environment of the client, the tax
laws of his state or country and the goals of his culture.
Training and support of agents will be facilitated by the
ability to access product, sales, marketing and operational
information. Over time, training is likely to be more in how
to access information than in the information itself. The
system will direct agents to the most desirable products.
...............................................................................
QUESTION: How will agents use these new information technologies?
ANSWER: Agents will be able to bring technology to wherever customer
interaction takes place. This technology will be compact
units (smaller than today's laptops) that will be able to
produce hard copy output. Using cellular communication
technology, these units will be able to connect to the network.
Agents will use these tools for immediate product proposals
and analysis, for acceptance of applications (printing hard
copy for signature and approval), and through connection with
the network, for initial underwriting review (using expert
systems) and for binder issues of policies on clean
situations. This will make the agent more efficient as it
improves the client relationship. For unaffiliated agents,
the same systems will connect to the service centers of their
manufacturing companies.
..............................................................................
QUESTION: How will product development be changed by new information
technologies?
ANSWER: More flexible systems will greatly facilitate the development
of specialized life insurance products. The product
development process will be done by a team of representative
from all departments, using expert systems to assist in
product configuration. The team will be supported by a myriad
of design, development and advisory systems. The system will
help integrate information on regulatory conditions, market
requirements, support systems available, projected sales and
profits and historical success or failure of products. Issues
will be resolved and product configurations developed on an
iterative basis until a final product emerges.
The outcome of the work of the product development team will
be both a product and a clear path for the development of the
infrastructure that will support it. Educational, marketing
and sales development materials can then be made available to
the sales force through the network.
.............................................................................
QUESTION: Are there any downsides to this new technology?
ANSWER: Technology will offer major opportunities to improve profit,
increase speed to market and enhance competitiveness. It will
also create a new set of management issues.
For example, when a substantial capital investment has been
made in technology and is being amortized, it will be
difficult to make a swift reduction in those expenses, since
technology based assets are not the kind that can be sold
quickly, The financial flexibility of the company will be
restricted.
Also, there is already evidence that the human mind can only
absorb so much information. Care must be taken not to swamp
the employees with non-essential information, while giving
them access to information and services that will enhance
their performance. Similarly, with increased use of
information technologies, a generation of employees could
emerge who do not comprehend the fundamentals of the business
and rely on the system for knowledge, analysis and direction.
The danger lies in the need for knowledge, analysis and
direction. The danger lies in the need for knowledgeable
personnel to manage, direct and innovate.
Lastly, while new information technologies have great
potential, they are also subject to continuous change and
improvement. Unless carefully managed, investment in these
technologies could result in the necessity of additional
investment to bring the systems up to date as the technology
matures.
.............................................................................
QUESTION: How can a company best take advantage of new information
technologies?
ANSWER: To take full advantage of new information technologies while
protecting the investment in current information systems, a
consistent corporate architecture standard is needed. Such a
standard defines the way that various technologies link to one
another, the way that applications interact, the
representation of data and the methods used by the company's
network. One Achilles' heel of current technology is that
different manufacturers use different methods for exchanging
and managing data. It can be difficult, and sometimes
impossible, for systems to communicate. This situation has
spurred efforts to establish uniformity through standards
committees that represent both users and manufacturers.
.............................................................................
QUESTION: Which new Technologies are right for which kind of companies?
ANSWER: Business requirements must drive the particular technology
strategy that a company adopts (rather that vice versa) since
some of the emerging technologies are still "a solution
looking for a problem to solve."
Corporate vision and strategic direction vary between
companies. Each company starts from a different position, and
moves from there toward its goal. The key to successful use
of new technologies lies in the corporate vision, the
effective management of change and the creation of an
environment in which innovation, change and challenge are the
norm.
New and emerging technologies, while exciting and impressive,
are of no value until management focuses on them as a way of
enabling both change and integration in the organization, its
product and services. Used in this way, with imagination and
vigor, the partnership of the life insurance industry and
technology will provide new , profitable and exciting
opportunities for the future.
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