The Strategy for a Life Insurance Company - Essay Example

Introduction The rapid growth of internet in the business environment has percolated the strategic processes of the insurance industry. In a bid to increase sales, improve customer service, reduce processing time and control cost, e -commerce and e - business solutions hold great appeal for an insurance company. If e launch is successful, some parts of the traditional set up can be replaced by more modern processes. It will turn the insurance company from a mammoth organization to a lean firm. This paper evaluates the strategy for a life insurance company to transform from a brick and mortar business to an e enterprise. The Strategy To convert a brick and mortar business to an e enterprise requires an inhouse IT department. The Director of the company will then need to sell the e business concept to head of the department and secure their support. Once this is accomplished, head of departments will need to work with each other to create a conceptual framework, that establishes the functioning of the e enterprise, clearly demarcating the modules that would be e enabled and specifying timelines for the same. The next step is for the leadership team to locate vendors with the help of IT professionals and obtain quotes. Once the vendor is finalised they must be invited to the company and explained the work flow. Members from respective departments should then be identified to create a document on user requirements to be handed over to the vendor, for creating the architecture for automation. Once work flow and user requirements are ready, these need to be discussed by the core team which should include representation from IT, users, vendor and leadership team so that the all concerns get addressed. The vendor should then submit a functional analysis document for approval to the user and then make the module available for testing on a test site. Responsibility for testing the application should be allocated to staff identified, and every problem encountered must be reported in a formal report format to the vendor for rectification and retesting. A project management approach that emphasises working with timelines, ensuring feedback, changing timelines depending on change in requirements or any other delays is essential for success in implementation. Clear communication channels and escalation matrix should also be defined. The core team must prepare a methodology and time frame to transfer existing data to the new system. A final launch date should be adhered to or changed depending on project progress. The leadership team must pay special attention to securing staff buy in, so that the new system when launched is embraced by the users. In implementing this strategy various organizational, management and technical issues will need to be addressed. This is discussed below. Organizational Issues In order that a life insurance company moves from a brick and mortar business to an automated environment, strategic leadership is very important. The leadership team may need to evaluate: "Strategy to deal with channel conflict Prevent erosion of margins Assess type of products suitable for web distribution Techniques to strengthen customer relationships and gain new customers online" (Bloor Research). This entails huge investment in IT infrastructure. The leadership team will need to decide the payment method for this investment. One option is to outsource or share costs with a provider while the other is to take costs out of existing operations. For example Allstate Insurance, a US based insurer "restructured its workforce to support a move towards a multi-channel sales strategy encompassing the Internet, call centers and agents. It eliminated thousands of non-agent positions and converted captive agents into independent contractors. These changes reportedly will save the company $600m. Allstate has also reportedly reorganized and consolidated some of its operations to save costs" (Insurance Journal). The life insurance company needs to decide the areas to invest in so that maximum value is derived. Automating in a phased manner is also an alternative but it may require a strategy to integrate manual systems with automated processes at a later stage. Policy administration software, policy holder portal, agent portal, automation of underwriting may offer the maximum value to a life insurer. For instance a policy holder portal can include, online change of address by policy holder or request for information which will reduce man hours and consequently cost and delays. A policy administration software can allow the staff to: Issue policy in all locations of a life insurance company and not just the head office Assignment of policies/loans and surrenders can be automated Remittance received can be updated on the back end application and policy status updated accordingly (lapsed/pending issuance/active) Similarly underwriting software can be used to automate life insurance underwriting which can help cut down the staff and the processing time for policy issuance. A well known life insurance underwriting software is AURA. E enabling agent interaction through agent portals can serve as a competitive differentiator. As pointed by Josefowicz: in an industry in which price and product moves are quickly copied by close competitors, service offerings like rich and easy-to-use agent portals can make the difference in attracting top wallet share from independent distributors. A recent Celent survey of independent agents showed that service, support and technology narrowly edged out price, product and commission as the dominant factors in agents' choices of generally preferred carriers. The greatest advantage with automation is the consistent and updated information that will be available for deciding on premiums and designing new products. To ensure that the change to a paperless environment is successful, staff buy in is crucial. It should become a priority for the leadership team to secure support from front line staff and not implement the change in an autocratic, top down manner. Moving to a new model of working, involves culture change. Staff that is used to working in a paper intensive environment and old ways, should be able to perceive a value in technological solutions, so that a plan that is defined can be energetically implemented. There are bound to be teething issues with any new system that is developed, and the leadership team needs to ensure that the enthusiasm of the staff is not lost. If they feel that automation is troublesome compared to old ways, chances of success become slimmer. To tackle this issue the leadership team could take the following steps: Involve representation from front line staff of associated departments in a core team that implements e business solutions Make staff part of the team that validates functional analysis document and conducts user aided testing Ensure regular meetings of core team with head of department on progress It has been pointed by Pastore that "despite investments in intra/extranets and Web-related initiatives, insurers are not aligning business and IT e-commerce-related training and activities the IT and business segment of the insurance industry are focused on hard skills, and lack an understanding of skills such as project management". The company cannot move to an e enterprise model by transferring the entire responsibility to the IT department without direction from the top management. Management Issues The issues that will arise at project management stage are discussed below: Security and privacy concerns of the customers will need to be addressed so that the system which is built, can be embraced by customers as well as agents. For instance Thieme suggests use of "code review software that monitors code integrity" (4) for higher security. Planning distribution through the internet. It has been noted by Evans and Wuster that internet is a powerful distribution channel since it removes "information economy's scope and depth for information". Since insurance products are complex, the marketing team of the life insurance company will need to work in a way that facilitates easy understanding of products by the customer. As pointed by Holzheu, Trauth & Birkmaier " tax efficient, life insurance policies, increases the consumer's need for specific advice. It has not yet been possible to automate the provision of information, although it can be assumed that advances in technology will create new opportunities for automated solutions" (10). It is known that term life is easier to sell through the internet since it is fairly simple to understand. However pension products may not be so suitable for distribution through the internet and will depend on other channels of distribution. What e enabling can do for such products is improve overall service quality. For example, there could be links to the aggregator's or regulatory body's site for product comparisons, a section on frequently asked question sections, toll free line and call centres, which will support the e business initiative. Coping with limitations of the existing administrative processes: Limitations in existing administrative processes and technology can be barriers to a robust e enterprise endeavour. It may require a strategy to integrate legacy system with the new system or transfer the data from manual records to the automated version. As pointed in the Insurance Journal "web enablement must come in conjunction with a redesign of business processes to eliminate inefficiencies, remove manual steps and take advantage of the interactive nature of the Internet". Training of staff: To deliver web enabled business processes, the life insurance company will need to ensure that the core team responsible for implementation of the new system also trains the users. If bugs are found, immediate reporting mechanism needs to be established. The old system can run in parallel with the new system for a specific frame of time and then gradually be phased out once the entire data has been transferred onto the new system. Standardizing claims settlement may be difficult since it involves manual intervention for investigation and decision making and especially because it can involve parties that are not in contractual relationship with the life insurer. However, updating claim status, pay outs, amounts settled, can still be accomplished through a claims module with free space to enter or upload manually gathered information. IT support is required to constantly validate the functioning of the new system and interact with vendor for rectification and upgrades. Technology Issues Sidney, Harris & Katz have provided evidence which indicates that "firm performance [is] linked to the level of information technology investment intensity" (263-295). One of the factors involved in being an e enterprise is to mass customize services. Web and enterprise application integration technologies, assist in this direction. Some challenges and solutions to cope with these, through technology are presented below: Straight-Through Processing (STP) for improving customer relationship - This requires assimilation and analysis of significant information and enhanced tracking system for existing customer relationships. Mukherjee proposes STP-which promises real-time response on matters ranging from quotes to claims. By empowering agents to conduct more real-time transactions, while gaining access to related products and services, traditional agent networks can rise to the challenge to meet growing customer expectations for higher-quality, personalized service" (4). CRM Solutions- Investment in front office application, especially CRM can help bridge gap between customers and stakeholders. CRM helps to integrate sales, service, and marketing for products. It allows for a common platform for understanding customer requirements and business partner relationships. As pointed by Mukherjee this may require "applications covering customer transactions (transactional CRM), business intelligence (Analytic CRM), and website and call center interfaces (Collaborative CRM). The result will provide high touch and high-value interactions with the customer" (5). Managing partner relationships: Since the life insurance company's business depends on agents, brokers and other channel partners, like financial institutions for bancassurance a system that provides these partners relevant information about their customers is valuable for the e enterprise. A portal for these partners will help promote effective applications and consistent B2B business practices. Integration of front office with back office system: This will be required to service customers more effectively. For example, data updated on remittances at the back office should reflect on the policy holder portal indicating premium received and automatically update the status of the policy. Legacy System: According to Bloor Research "ageing legacy systems prevent the e-enabling of back office applications and also prevent insurers from accessing relevant data that could be used in various applications such as CRM". Integrating the front office and back office applications with legacy system will help in having consistency in information. Since this applies to the core business, well defined methodologies for implementation are crucial. If transfer of data or integration fails, data can turn junk for instance active policies can show as lapsed. As pointed by Mukherjee "in many cases, the most cost-effective strategy will be to leverage these investments by integrating them with new front office and B2B applications. However, in other cases, insurers might have no choice but to undertake wholesale replacements. The effort won't be trivial. For instanced, for a mid-tier insurer, the estimate for replacing a core Policy & Claims Processing (P&C) system amounted to nearly $300 million, requiring up to 5 - 7 years to complete"(6). Other Options: The insurance company may also want to evaluate the option of workflow management, optical scanning and collaborative project execution. Conclusion Converting a life insurance company to an e enterprise requires not only huge monetary investment but also investment in keeping the energy and tempo of the employees high so that project implementation is successful. Josefowicz aptly notes that a life insurance company can "maintain a small group of e-business experts to provide guidance, consistency and best practices on the five key areas of strategy, education, usability, security and standardization". This will help the company reduce the risk of: Re-inventing the wheel for each new initiative Supporting cross-purpose initiatives Lack of training, which leads to lack of adoption and user frustration Divergent interfaces, which increases training expense, and reduces adoption Expensive, unnecessary integration of divergent systems Lack of interoperability Expensive and time-consuming post facto integration Competence, clear direction and enthusiasm can surely make the project a success. WORKS CITED Bloor Research. Web-Based Technology and the Future of the Insurance Industry. July 2002. Bloor Research Ltd.15 Feb. 2006 . Evans, P. & Wurster, T.S. Blown to bits : how the New Economics of Informations transfoms strategy. Boston:Harvard Business School Press, 1999. Holzheu T., Trauth, T. & Birkmaier. "The Impact of e business in the insurance industry Pressure to adapt- chance to reinvent." Swiss Re, Sigma no. 5/ 2000. May 2000. Insurance Journal. E-insurance: Creating a Competitive Advantage Excerpted from a report written in co-operation with Levels of e-business development. 3 July 2001. Wells Publishing, Inc. 15 Feb. 2006 < http://www.insurancejournal.com/news/national/2001/07/03/14104.htm>. Josefowicz, M. "The strategic importance of insurance e-business." Building an Edge. 6:4 (2005) 2005). 14 Feb. 2006 Mukherjee,D. "Some Crystal Ball Gazing: Key Industry Trends in the P&C Insurance Industry." Cognizant Technology Solutions,NJ. 14 Feb.2006 < http://www.cognizant.com/wpapers/open/pcinsurance.PDF> Pastore, M. Insurance Industry Slow to Adopt Internet. 4 Aug. 1999. Clickz. 14 Feb. 2006 Sidney, Harris and Katz. "Organizational Performance and Information Technology Investment Intensity in the Insurance Industry." Organization Science 2(1991):263-295 Thieme, R. "What insurance Can - and Can't- Do for security risks." Secure Business Quarterly 1(2001):1-7. Read More