Insurers face IT splurge

The insurance industry, long seen as a technology laggard, could soon be forced into adopting CRM, middleware and...

The insurance industry, long seen as a technology laggard, could soon be forced into adopting CRM, middleware and straight-through processing technology to help cope with new insurance regulations in the US designed to give greater oversight and transparency around the bidding process.

Pressure on the industry is coming from lawsuits in several US states against insurance brokerages that allegedly made phoney bids favouring companies that gave commission kickbacks. 

Last month New York attorney general Eliot Spitzer charged Marsh & McLennan, the largest insurance brokerage in the US, with creating fake bids for insurance contracts, and named four other companies in a civil lawsuit. 

Spitzer said the insurance industry needed to take a long, hard look at itself. "If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform," he said. 

Other states have also launched investigations into possible fraud by dozens of insurers and brokers.

"All of these issues will likely impact systems in some way," said Ann Purr of the Life Office Management Association, an educational group representing insurance and financial services companies in more than 70 countries. "If it requires gathering different data or gathering data in a different way, then it's going to be more work for the IT community. If it's just reporting to an additional place, that's just an additional process." 

The insurance industry is currently regulated at the state level in the US, so companies have to file separate financial statements and paperwork for each new product as well as rates and fees in each state in which they do business. 

A separate issue facing the industry is a bill to establish federal oversight of insurers. The proposal is seen as a positive by much of the insurance industry because it would provide relief from the patchwork of regulations required by the 50 states. 

It is unlikely the measure will be filed before the end of the year, but it could change the face of IT within the insurance industry. 

"On the technology side, it changes the whole dynamics and culture of the industry," said TowerGroup analyst Deborah Smallwood. "They now need to gain a sense of urgency. They'll need to streamline and automate systems that weren't necessarily fully automated before."

Smallwood pointed to the need for more sophisticated data mining and analysis tools to search national customer databases rather than state-only information. "It'll be a culture change," she said. 

Analysts also said business-to-business online insurance marketplaces might become more popular for their transparency in light of the investigations. 

Mark Snyder, benefits director at Owens Corning, used an online bidding engine from IE-Engine to procure insurance for his company's employee disability plan, medical benefits and compensation plan. IE-Engine uses an application service provider model to provide an online marketplace for companies to exchange bids with brokers and insurers. 

"Today, it would give us comfort that we wouldn't have to worry about bid rigging using the online tool," said Snyder. "It was also just more convenient." 

Smallwood said the insurance industry's IT systems are disparate, with front-end product distribution systems disconnected from customer relationship systems and back-end quoting and pricing systems. 

The onslaught of regulatory oversight would likely require insurers to integrate those systems in order to pull the data together. "Companies are data-rich and information-poor," Smallwood said. 

Lucas Mearian writes for Computerworld

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