Insurers face new technology reality

11.11.2004
Von 
Lucas Mearian ist Senior Reporter bei der Schwesterpublikation Computerworld  und schreibt unter anderem über Themen rund um  Windows, Future of Work, Apple und Gesundheits-IT.

The insurance industry, long seen as a technology laggard in the financial services sector, may soon be forced to embrace CRM tools, middleware and straight-through processing technology to help cope with insurance regulation reform that would require greater oversight and transparency around the bidding process.

Pressure on the industry is coming from lawsuits filed by attorneys general in several states against insurance brokerages that allegedly created phony bids favoring insurance providers that give kickbacks in the form of commissions.

New York Attorney General Eliot Spitzer last month filed a civil lawsuit against Marsh & McLennan Cos., charging the nation"s largest insurance brokerage with creating fake bids for insurance contracts. The lawsuit named four other companies connected to the scheme.

In a statement, Spitzer said the insurance industry "needs 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.

The attorneys general of California and Connecticut have also launched investigations against dozens of insurers and brokers regarding possible antitrust violations and fraud involving possible bid rigging.

"All of these (issues) will likely impact systems in some way," said Ann Purr, second vice president of information management at the Atlanta-based Life Office Management Association, an educational group representing 1,250 insurance and financial services companies from 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, which requires companies 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 legislative proposal known as the Oxley-Baker State Modernization and Regulatory Transparency Act, or SMART, which would create federal oversight of insurers. The proposal, which has not yet been filed in Congress, is seen as a positive by much of the insurance industry because it would provide relief from a patchwork of regulations required by the 50 states.

A spokesman for Rep. Michael Oxley, (R-Ohio) said that with only one week left in this year"s congressional session, it"s unlikely the act will be filed before the end of the year. If it were passed and signed into law, analysts said, it could dramatically change the face of IT within the insurance industry.

"On the technology side, it changes the whole dynamics and culture of the industry. They now need to gain a sense of urgency. They"ll need to streamline and automate systems that weren"t necessarily fully automated before," said Deborah Smallwood, an analyst at research firm TowerGroup in Needham, Mass. Smallwood pointed to the need for more sophisticated data mining and data analytic tools to search national customer databases versus state-only information.

"It"ll be a culture change," she said.

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

Mark Snyder, benefits director at Owens Corning in Toledo, Ohio, used an online bidding engine from Waltham, Mass.-based IE-Engine Inc. to procure insurance for his company"s employee disability plan, pharmacy benefits, medical plan and workers compensation plan. IE-Engine uses an application service provider model to provide an online marketplace for companies to exchange bids in a request-for-proposals process with brokers and insurers.

"Today, it would give us comfort that we wouldn"t have to worry about (bid rigging) using the online tool," he said. "It was also just more convenient."

Smallwood said the insurance industry"s computing 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.

Regulatory oversight could also lead to a Sarbanes-Oxley-Act-type oversight.

"The insurance industry is still primarily dominated by mutual companies, and Sarbanes-Oxley does not apply to them," Smallwood said.