Recently I had a chance to talk with John Roblin, Cover-All CEO, about how emerging technology is and isn't being used successfully in the insurance industry. Roblin has served as carrier CIO (for Chubb, USF&G, Travelers' Personal Lines, and CIGNA P&C), IVANS chairman, bank/credit card company CIO (Advanta), and vendor CEO (Cover-All). That gives him a unique perspective on the practical and strategic uses of technology for the insurance industry. What follows is the result of that interview.
JA: John, unlike most of the rest of us, you've had a chance to participate in the inner workings of financial services outside the insurance industry. How was it different? What can you share and what can we learn?
JR: First, let me tell you a little bit about Advanta where I was CIO between 1994 and 1998. Advanta was one of the first banks to focus on the credit card business and it became quite successful. One of the first things I noticed when I joined the company was how quickly they could roll out a new product — usually in 90 days or less — compared with what I'd been used to in the insurance industry, where several months or even years was the norm.
JA: Why? Is this industry risk averse? Does regulation stand in the way?
JR: I don't think it would be appropriate to say that the insurance industry is risk averse. After all, risk, underwriting risk, is what insurance is fundamentally about. However, when it comes to operations, insurance executives have been reluctant to grapple with the immensely complicated environment of systems and processes that characterize today's operations. I think that regulation has contributed to the resulting web of complexity, but there are other factors as well.
There is an increasing awareness that over the past 50 years we have added complication to our business. In the past, a new product called for a new system. A new reporting requirement was addressed with a new system and so forth.
During my time at Advanta, I also observed that in banking the various functions or departments that make up the banking process are more aligned with the overall business objectives. They don't have their own independent and potentially conflicting goals. In insurance, in many cases, it's different. Underwriting, actuarial, claims, marketing, and other functional silos sometimes look at themselves as independent business entities with their own goals and objectives. Separate functional silos then have separate systems leading to even more connections and complexity. This environment makes it very difficult for CEOs to orchestrate and implement new business strategies that cut across these organizational boundaries.
Systems have been built to respond to the way the industry functions, the way it has functioned for years. Unfortunately, each of these systems has to be connected to other systems resulting in a maze resembling a route map for a major airline without any hubs.
The challenge for today's executives is to reverse that trend and to achieve meaningful strategic change together with acceptable financial results, introducing responsiveness and simplicity in the process. That's not a trivial task. There are talented people in the insurance industry with innovative goals and objectives. They need a way to achieve them. They need a way to transform the slow and expensive operating environment of today to one that is nimble and cost effective.
We are well aware of this at Cover-All and have come up with solutions that can address the present operating needs of agents, brokers, and carriers and will enable them to move quickly to a much more simplified operating structure in the near-term.
JA: How do you account for this difference? Why did banking change and why hasn't insurance?
JR: Well, as I said partly it's due to inertia. The insurance industry finds comfort in its actions or lack of them by saying "We've always done it that way." But I think there's a more fundamental reason. In the 70s banking began to experience competition from inside and outside the industry that insurance is only now finally beginning to see. And that forced banking to realize that it had to look at itself from the customer's point of view. It had to begin asking itself how it could make the customer's experience more successful and satisfying. Banks that could and did, began to buy out the banks that couldn't and didn't.
When you finally begin to look through your customer's eyes at what you do, you might realize that your organization and systems were built to suit you and not your customer. So banking put the customer experience up front and its own convenience in the background. Business planning revolved around the customer. It didn't make sense for individual departments to have needs and goals independent of the overriding goal of the bank — great customer experiences. In insurance we've tended to optimize vertically, by silo. In banking they optimize horizontally, which is the way the customer sees things.
JA: So, from your point of view, banking was forced to change, to truly put the customer first and create a culture and systems that made it possible. Is the insurance industry hopeless? Are there some bright spots?
JR: Absolutely there are bright spots. You probably remember when Chubb created Masterpiece, the personal lines package policy for upscale consumers. We identified a niche and then looked at how we could best serve it. We saw that upscale consumers had real problems understanding and buying insurance because they have so many insurance needs. They would have to buy half-a-dozen policies and still might not be adequately covered in certain areas. So we designed a product that took care of everything in a single custom policy. And we developed technology that made it very efficient to quote, propose, and sell these policies with the speed and efficiency of mass production.
We looked hard at our paper applications and questioned the need for every piece of information. If it didn't make an appreciable difference to the underwriting process, if it didn't really affect the premium, we left it out of Masterpiece. Of course, that meant struggles with actuaries or other groups that always wanted more and more information — even if the business benefits did not outweigh the cost to capture and maintain the information and the inconvenience to the customer and agent. It took a senior business person, looking at the whole end-to-end process, to override the parochial interests of the functional areas and streamline the business process.
Progressive is another example of a company that looks at the insurance process from the consumer's point of view and is using technology to create value for the customer and profits for the company — by offering a variety of integrated ways to shop, buy, and get service. This willingness to be creative, to use technology in new ways, to see through the customer's eyes works awfully well for Progressive and it continues to take business away from other carriers.
AIG is an interesting case too. They are a huge organization that has been able to stay nimble. They leverage their size by obtaining economies of scale in infrastructure and maintain control through shared financial reporting systems. However, they also leave many of the decisions about organization and systems in the hands of the Profit Center Business head who is empowered to define the optimal processes to support their business goals. They are focused business people who effectively balance customer needs with profit and growth objectives. They also resist investments in technology that do not have clear business benefit and are constantly looking for ways to reduce costs.
The point of these examples is that there is no single way to use technology just as there is no one business model. The key is to understand the entire business strategy and align the processes with the customer's perception of value rather than optimizing each individual functional silo.
I think what happened in the insurance industry about 50 or 60 years ago is that it saw itself as a paper processing business that output policies and chose to imitate Henry Ford and his production line. Insurance was seen as another form of manufacturing and that was how technology should be brought to bear. The customer experience didn't matter. Ford said his customers could have any color they wanted as long as it was black. Insurance adopted the same mentality.
Faced with enormous competition from overseas and consumers who demanded quality, customization and low price, the auto industry had to radically change its manufacturing processes. It is time, perhaps, for the insurance industry to look at its "assembly line" from the customer perspective and ask what provides value and what needs to be changed or eliminated. We have to ask ourselves how much longer will customers tolerate the costs and delays in our current processes. How much longer will they continue to be satisfied by the same products?
Many in our industry see these issues and understand that we have to change fundamentally but our ability to change is inhibited by our culture, our functional silos and our systems.
JA: Carriers certainly seem to have a product focus, an internal focus, but agents are generally more interested in developing and improving their relationship with their customers — and that has the makings of conflict. It seems to me that ACORD, IVANS, SEMCI, straight-through processing, and interface issues in general have a production line and product focus, not a customer experience focus. It's as if the industry looks inward rather than outward, and that concerns about internal efficiency trump concerns about customer satisfaction. What do you think?
JR: I agree. In this industry the connection between the customer and the product has significant "gaps." Let me give you an example. Let's say you have a day care center and you want to buy insurance. What happens? You go to an agent and the agent tries to cobble together a variety of policies from several different sources to cover your risks. The process takes the unified needs of the day care center, breaks them down into little pieces, goes through complex and redundant application, underwriting, and pricing processes and then attempts to put them back together in some kind of proposal that makes sense – but it doesn't.
Today some carriers and MGA's have made real progress putting together industry-specific packages but we still have a disconnect between customer needs and the traditional insurance products. Insurance companies operate by what we call line of business. Agents and their customer would rather operate by type of business. It's a big difference. There are good reasons for the different perspectives, but sooner or later, the customer's needs will be served.
JA: How do the ACORD standards come into the picture?
JR: First let me say that over the years I think ACORD has worked hard and accomplished a great deal. The work that has been done to standardize and define data is especially valuable as is their work with other standards organizations. At Cover-All we use ACORD standards whenever they exist.
But in some ways the standards process is a very visible symptom of how this industry fails to understand that it needs to change to a customer focus. I would argue that the fundamental purpose of standards is to enable us to marginally improve the status quo. So your view of the value and effectiveness of any set of standards depends to a large degree on whether you think the challenge is to make marginal improvement to the status quo, or to work on major revision. Standards haven't resulted in changing the way the industry works – which is what we really need. In fact, like many of our legacy systems, standards can inhibit change rather than enable it. I find it interesting to compare the results of ACORD and the development of MICR standards in banking. There was a need for banks to devise a minimal set of standards to handle rapidly increasing volumes of payments. A very different mind-set was brought to bear and success was achieved in a short time. Without MICR, banks could not function today.
The ACORD standards are often a compromise in order to gain broad acceptance. Therefore they get more and more complex year after year. More and more fields are added as actuaries, underwriters and others make new demands. Agents, carriers, vendors, and ultimately consumers have to deal with this increasing complexity. Sometimes it seems that the standards process is really just a way of paving the cow path. We use increasingly sophisticated technology to do exactly the same thing we've always done. What we should be doing instead is to rethink the insurance process and products from the customer's point of view. Standards are a tool to help us achieve business goals — not an objective unto themselves
Here's an example. In-force policies need to be changed from time to time. Since a policy is a legal contract what you sometimes really need to do is cancel the existing policy/contract and issue a new one. But that's lots of work, especially in a paper pushing industry. So, you look for short cuts and carriers developed a variety of endorsement forms to help with policy change processing. And then ACORD developed forms standards and interface standards for policy change transactions. On the surface it all makes sense.
But if you step back from it for a minute you have to ask yourself, "Is this the best way to handle policy changes; that is, using and having to handle in the agency and carrier a bunch of electronic and paper forms? Wouldn't it make more sense for the agent to just make the change directly to the policy on the carrier's system? Wouldn't that cut down on time spent, errors, reduce costs, and improve service?
JA: If the standards are paving the cow path, that is, reinforcing old, increasingly inappropriate business processes, how do we make the kinds of changes you have in mind? How do we use technology to do things a new way?
JR: I alluded to one example just now. Rather than having a multi-step process to do endorsements — with agents entering data in their systems, printing out or transmitting "change forms" to their carriers, who then process them — which takes time and sometimes introduces errors, why not cut out all those steps and have the agent do it all right now? It's the idea of "one and done" people have been talking about for years.
The key, I think, to making change happen is for carriers and agents to begin to look at how they should use and own data differently from the way they do today. Today, we recreate and store the same data over and over in different places. The agent wants complete policy detail. The carrier wants complete policy detail. They each want to own the data. They each want to be in charge of the data. So we've tried to create a very complex process for giving each what it thinks it wants. But it doesn't work.
What makes more sense to me is for agents and carriers to come to an agreement that before the policy is sold the agent owns the data and after it's sold and the carrier is on the risk, the carrier owns the data. Before the sale, the agent holds the gold standard for data. After the sale, the carrier system is the gold standard.
So one implication for technology is that when agents need information about an in-force policy or want to make a change, they would use the carrier's version. Some way or other they'd go to the carrier database. Carriers are starting now to provide access through their Web sites to their databases and some agents are taking advantage of those services, but there's still an expectation that data must be transferred back to the agent's system.
Our current industry technology model is built on the idea of redundant information storage that we attempt to keep consistent through interface. Our new technology model should be based on the idea that information is captured once and then shared utilizing communication tools like the Internet. If I understand it correctly, your idea of Hybrid Management Systems is based on the idea of shared information. That is the type of new thinking that we need — to focus on how to work together to make the insurance process better, faster, more efficient, and better able to serve the customer.
JA: How about commenting on some other industry trends? Will we see general convergence of financial services? Is insurance beginning to change in important ways?
JR: I don't see any reason to expect convergence of financial services — at least not in the foreseeable future. It has not worked very well in the past. Consumers see insurance and banking in very different ways.
But there is a great deal of change underway in the industry. A new generation of technically savvy people is entering agencies and carriers. There's a blurring between carriers and agents — with new players assuming a new mix of roles. Creative people are focusing on niches where they can bring special value to the customer by using technology in new ways. Overall, I see more recognition of the need to see through the customer's eyes. It is not altruistic; rather, it is simply recognition that customers pay the bills and they are expecting better products, service, and value from their providers. If they are unhappy, they can have access to information and will migrate to those providers who deliver.
We're starting to see three emerging areas for technology in the insurance process. First, carriers and agents realize they have to do a better job using the information they have within their walls. They're beginning to use it for business intelligence, planning, and so on, and they're finding ways to share information across the organization through data warehouses, hubs, and other technology.
Second, they're paying more attention to every place they touch the customer and finding ways to use technology to improve the customer's experience. Utilizing new technology, it is possible to create new offerings and services that can be delivered to the customer quickly and efficiently.
Third, some carrier and agencies are beginning to experiment with outsourcing some of their technology or business processing functions — sometimes overseas. So, agents are beginning to use ASPs rather than build bigger and bigger agency data centers. And some agents are using call centers to provide 24x7 service. Carriers are beginning to use third-party call centers as well and some smaller and start-up operations are outsourcing their policy and claims processing. The Internet makes it possible to be more flexible about who does what — irrespective of geography.
I'm beginning to see the type of change banking went through a generation ago now in insurance. New technology, especially relating to the Internet, and creative people are in the process of tearing up the cow paths and building new roads. I think we'll see more change in the next few years than we've see in the last 30.
JA: How is Cover-All positioning itself to take advantage of these opportunities?
JR: We have combined our knowledge of insurance and technology, our extensive software inventory, and our ability to design and create innovative solutions in an exciting new insurance suite: My Insurance Center. We developed My Insurance Center to enable our customers to shorten cycle times, reduce costs, access information, and manage their organizations in "real time." My Insurance Center provides solid return on investment (ROI) quickly and is designed to rapidly adapt to changing business needs.
JA: John, thanks for taking some time and sharing your insights. Next time we'll talk about more about Cover-All and what you're up to there.
JR: It's been a pleasure. We look forward to showing you how we help our customers achieve their business goals by utilizing My Insurance Center.
Sometimes it seems that the standards process is really just a way of paving the cow path. We use increasingly sophisticated technology to do exactly the same thing we've always done.
Our new technology model should be based on the idea
that information is captured once and then shared utilizing communication
tools like the Internet.
© Copyright 2003 by Sound Internet Strategy. All rights reserved
When you finally begin to look through your customer's eyes at what you do, you might realize that your organization and systems were built to suit you and not your customer.
In some ways the standards process is a very visible symptom of how this industry fails to understand that it needs to change to a customer focus.