As information technologies continue to evolve, carriers need to
question centuries-old practices. By Matthew Josefowicz
THE HISTORY OF THE insurance industry is really a history of the application of information technology. The
ability of insurers to gather, analyze and
publish information has always been
determined by the state-of-the-art technology available to communicate, store
and organize information.
Insurers were early adopters of international couriers, telegraphs, telephones, typewriters, filing cabinets, tabulating machines and mainframe computing.
Unfortunately, the organizational
structures of many insurers are still
defined by this 20th century relationship to information. This 20th century
information ecosystem is based on
assumptions that no longer hold:
• Gathering extensive information
about prospective risks or actual losses is
labor-intensive and time-consuming.
• Providing information to prospects is
labor-intensive and expensive, and people who need to work with the same
cluster of information need to be
physically collocated so they can share
access to information stored in physical form.
• People need to work in offices so they
can be connected to telecommunications systems.
• Organizations require large clerical
staffs to manage information.
• The ability to discern the patterns in
large masses of data requires years of
Many insurers will recognize these
assumptions as underlying some of
their own current organizational structures:
• Their staffs work all together in
offices, so they can be physically proximate to information storage (paper files,
computer systems) and channels (mail,
• They have large, low-skilled clerical
staffs to process paper-based information, often located in primary market
cities, where real estate is extremely
• They pay expensive commissions to
agents to provide information to
prospects, and to gather information
from prospects and provide it to underwriters.
• They have underwriting and claims
processes designed to support the laborious assembly of a case file, and the
review of that case file by a human
• They continue to use data sources and
elements in underwriting and claims
uncritically because they’ve always used
them, rather than re-examining to
determine whether these (or possibly
other) data sources are truly predictive
of results, because the cost of analysis is
perceived to be high.
All of these practices and prejudices
are the result of a certain stage of information technology—the 20th century.
As information technology has
advanced, few companies have really
taken the opportunity to think about the
implications of those advances, and
question their business practices.
PROVING ASSUMPTIONS WRONG
Assumption No. 1: Gathering extensive information
about prospective risks or actual losses is labor-intensive and time-consuming. Thanks to commercial data aggregators such as FICO,
LexisNexis, Dun & Bradstreet and others,
as well as increasing movements on the
part of government to make more and
more data available in structured electronic form, gathering information is
faster and cheaper than ever, and only
getting more so. Already, leading personal lines insurers such as Mayfield Village,
Ohio-based Progressive have stopped
asking prospects to provide their VIN
numbers, instead pulling the information from DMV sources and asking the
prospect only to verify the information.
It is not too far-fetched to envision a
near-future of one-question underwriting: “What’s your social security number, and may I have your permission to
access information about you from commercial and government sources?”
While some insurers have doubts
about the quality of data from these
aggregated sources, I have asked several
audiences of P&C insurers lately if they
believe that their agents provide higher
quality data than the aggregators. No
hands have gone up.
Assumption No. 2: Providing information to
prospects is labor-intensive and expensive. When
information is tied to paper or people,
providing information to markets is
expensive. When information can be
broadcast and made accessible online, it
is much cheaper. While intermediaries
continue to provide value to most segments of the insurance market, that
unique value as an information channel
has diminished. Insurers need to reevaluate the value of their intermediaries and their strategies for them.
Assumption No. 3: People who need to work
with the same cluster of information need to be
physically collocated so they can share access to
information stored in physical form, and people need
to work in offices so that they can be connected to
telecommunications systems. The growth of
Web-based computing and the explosion in both mobile and VoIP telecom
makes these postulates obsolete. There
may be other reasons to physically collocate staff, but insurers should make
sure that they know why they are doing
so, and what they hope to gain. They
should balance this against the potential
benefits of moving more staff to the
field closer to customers and intermediaries.
Assumption No. 4: Organizations require large
clerical staffs to manage information. Paper-