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Ask a battleship captain to turn his heavy ship around on a dime
Ask a battleship captain to turn his heavy ship around on a dime, and he's likely to laugh at you. Ask most insurance industry CIOs to turn around the slow-moving vessels that are their businesses, and they're likely to quit.

For years, the insurance industry prided itself on its staid and stolid conservatism. But in an age of increasingly bitter competition for customers, industrywide consolidation and declining revenues in many sectors, a reluctance to keep up with rapid changes can be an Achilles' heel. Today, insurance companies are smarting from bites taken out of their traditional business by the global banking industry, which has lured away customers with a range of life, health, property, casualty and retirement products.

Indeed, the weak state of many U.S. domestic in-surance organizations has already invited overseas financial services companies to eat up the vulnerable smaller fish. In January 1996, for example, the Switzerland-based Zurich Group purchased Long Grove, Ill.-based insurance company Kemper Corp. in order to provide insurance and annuity products. "Banks have been extremely aggressive in the insurance area," says Jean Gora, manager of research for Life Office Management Association, an Atlanta-based life insurance industry association of 800 member companies worldwide. "In Europe and Canada, the largest banks already sell insurance through their branches. It will happen here, too."

The financial services sharks aren't the only ones circling in the insurance industry's waters. While the banks eat away at traditional bases by usurping customers, revenues from existing customer bases are flattening out in the wake of ongoing complaints of lethargy and indifference to customer needs. In fact, industry analysts note that the market for life insurance is declining at the rate of 10 percent annually; the property and casualty market remains stuck at a sluggish 2 percent annual growth rate.

All of that unrest is certainly enough to give insurance executives nightmares. But in an effort to resist succumbing to outside competition, the sleeping giants are beginning to rouse themselves. Their strategy: Beat the financial services companies at their own game by becoming a one-stop shop for customers' insurance needs.

Powerhouses like the Prudential Insurance Co. of America and Aetna Inc., for example, offer a soup-to-nuts array of products, including life, homeowners and auto insurance as well as annuities, mutual funds and health-care coverage. And smaller companies are hedging their bets by diversifying product lines and zeroing in on niche markets.

It isn't always easy for a sluggish in-dustry to change its modus operandi, but these organizations have little choice. Today, customers-particularly those who represent large institutions-not only demand better service but want the convenience of one-stop shopping as well. "Pursuing multiple lines of business is a logical step," says Michael D. Pollack, a principal with New York City-based consulting firm Booz, Allen & Hamilton. "Insurance companies are already in the business of managing risk. When an agent selling life insurance does a financial-needs analysis, it makes sense to be able to offer other products, like mutual funds, that fulfill more of the customer's needs."

The strategy seems to be working: Some insurance companies that have gotten into the financial services business are now beating out mutual fund companies for institutional business. Aetna, for example, recently replaced Fidelity as the 401(k) coordinator for Inter-national Data Group, CIO's parent company. But insurance companies fight such battles one customer at a time. To maintain "wallet share," as they call it, insurance companies must find out more about the customers they already service. Many now realize they are sitting on mountains of once-neglected customer information that suddenly has become valuable, making it possible for them to offer a wide variety of products.

These insurance giants often see new technology-particularly client/server systems and data warehouses-as the key to survival. "All of a sudden, senior executives are saying, 'Oh my God, we have customers,'" says John McCauley, a former insurance industry consultant who now works as executive director of industry marketing at Menlo Park, Calif.-based Informix Software Inc.

"For years, customers were just alpha-numeric data stored in the mainframe. Now companies want to find out about all these people they've been losing."

Going After Wallet Share

Unfortunately, even the most ambitious CIOs realize they're handcuffed by gigantic investments in legacy systems. "CIOs today lose sleep when they see the competition utilizing new technology, while 50 percent of the money they have goes to legacy maintenance,"McCauley observes.

For example, GAN Canada, a property and casualty insurance company in Burlington, Ontario, was pouring most of its IS budget into maintaining the nine-year-old Cobol databases in its creaky IBM 3090 mainframe when management realized things had to change. In 1995, the company found it was rapidly losing market share to competitors in regional Canadian markets, particularly Vancouver and Quebec. And the mainframe was at least partly to blame. "The existing mainframe was a liability because development time was so slow and information was not readily available," says Bill Wallace, GAN Canada's director of information systems.

In hopes of speeding up its response time, the company decided to move all of its major operating systems to a client/server environment. It implemented an aggressive plan to retrain its Cobol cowboys in the world of Unix and install an Oracle-based client/server data warehouse running on Pyramid Technology and Sun Microsystems Inc. servers. Wallace's staff is also moving the company's financial systems to a client/server environment running Computron accounting software in an effort to pare mainframe maintenance to the bare minimum and throw every available resource into building the new systems-all in a nine-month period. The company unveiled its client/server policy system in October, and Wallace anticipates company fortunes will improve quickly. "We'll be able to spot trends, analyze things quickly and see which lines of business are going up and down," he predicts.

Many insurance industry CIOs are eager to implement data warehouses that both consolidate customer information and allow various groups within the company-such as brokers, sales agents, customer service reps and administrative personnel-to view the same customer information in several different ways through a variety of graphical front ends.

At Philadelphia-based life insurance and annuity company Penn Mutual Life Insurance Co., IS staffers have built a 4GB to 6GB data warehouse on a Sybase Inc. relational DBMS that runs on a RISC-6000 server. The warehouse organizes customers by name instead of policy number, improving customer service at Penn. "We're designing all our systems with an eye to knowing who customers are and becoming more conversant in their needs," says Susan Kozik, chief technology officer at Penn Mutual.

But she admits that it's a massive undertaking. "We're talking about changing and modifying an old flat-file transaction system to an object-oriented activity that lets you search on an object like a name, an address or a geographical region," she says. "It's no longer transaction processing after the fact. It's a proactive use of information and a major conversion."

For companies like Prudential Insur-ance, hanging onto wallet share means implementing new data access architectures to provide better customer service. In 1995, for example, the health-care arm of the company, Prudential Group HealthCare, implemented a Member Services System (MSS) consisting of PCs linked to Sybase OpenConnect running on Sybase MDI gateways. The system lets customer service personnel access customer data stored on 11 IBM 3090 mainframes. These mainframes, some of which are 14 years old, are stuffed to the gills with legacy DB2 and Cobol-based databases, and up to a million gigabytes of customer data. When customers call with questions about providers or the status of claims, they no longer have to cool their heels while the service rep tries to wade through screens full of arcane computer code. Now customer service representatives pull up a customer file, in English, instantly. Workers are handling 90 calls a day, up from 60 before the new architecture was put in place.

Waiting for the Web

Meanwhile, many insurance companies are moving ever more aggressively into the global market, where opportunities for increasing the customer base are better. The insider name for this phenomenon, "the Chilean factor," comes from private retirement plans that have caught on like wildfire in Chile and have spread throughout Latin America. "The Chilean factor is occurring in the Far East, where the market is growing at a rate ranging anywhere from 20 to 30 percent annually," says Informix's McCauley, who spent many years of his previous incarnation in international insurance.

Ironically, the insurance industry's worldwide aspirations don't always extend to the World Wide Web. Most insurance companies think of the Web as a place where they can put up a billboard to showcase their offerings, but few are thinking of doing much else, according to a recent study of 170 North American insurance companies conducted by Booz, Allen & Hamilton.

The study revealed that although 98 percent of insurance companies now run Web sites, only 10 percent think of their sites as having strategic importance to the company. And 68 percent of customers of multiline companies are asking for quotes online, but only 26 percent of companies plan to offer this capability by 1998, according to the study.

Penn Mutual's Kozik explains that her company is interested in using the Web more aggressively but is not yet sure how to go about it. "Right now, the question is, How do I get enough pull on my home page for someone who's looking for life insurance?" she asks. "How do I make it attractive enough to even begin the conversation?"

But Booz, Allen's Pollack says any hesitancy may be symptomatic of the industry's near-fatal conservatism. "It points to the fact that insurance companies are not as imaginative as they could be," laments Pollack. "We tell our clients, 'You need to understand the impact of the Net and make sure you prepare for it today. If you don't, you run the risk of losing big segments of the market.'"

A final defensive strategy for insurance companies is to admit that "if you can't beat 'em, join 'em." Call it management by waking up and smelling the coffee. Across the industry, insurance companies face an identical challenge: finding a way to transform themselves into multiproduct companies that listen closely to customers. To do that, they must overcome a mind-set that is foreign to many who have grown up in the business. "Historically, insurance folk tended to work in narrow specialties-auto, health, life or whatever," says Kozik. "If I were selling you a pension or life insurance product, I would be reluctant to introduce you to health care or auto coverage." But without the aggressive help of CIOs, such reluctance can cause companies to end up in the belly of a bigger fish.

Bronwyn Fryer is a business and technology writer in Santa Cruz, Calif. She can be reached at bronwyn@fryer.xo.com.

Prudential Reaches Out
An interactive site gives customers the access they've asked for

When it comes to keeping in touch with customers over the Internet, Prudential Group HealthCare, a business unit of the Prudential Insurance Co. of America, is ahead of the competition. The company is currently piloting a secure extranet Web site, slated for rollout in early 1998, that will provide some 15 million health plan members with easy access to their medical and dental benefits information via the Web.

Based on Netscape Com-munications Corp.'s SuiteSpot 3.0 Server Software and Net-scape Communicator Client Software that also incorporates Sun Microsystem Inc.'s Java Computing platform, the ex-tranet will run on Sun's Ultra Enterprise 2 and Ultra Enterprise 3000 servers. After entering an ID and password, members will be able to change primary care physicians, look up participating doctors, find directions to a doctor's office, review a claims history, download claims forms, or send questions or comments to member services.

Prudential hopes this offering will put its site far ahead of competitors' sites, most of which currently are not interactive and offer little more than company information. Given the fear, uncertainty and doubt that many in the government and the public are expressing about the availability of medical information on the Internet, Myles Trachtenberg, vice president and CIO for Prudential Group, is treading carefully. "No personal information will be published on the site," he insists. "We're not publishing medical records or diagnoses. We're just putting out status information that customers can access at all hours."

Trachtenberg and his staff are also taking their time to develop the site. About 25 IS professionals, aided by teams of specialists from Netscape and Sun, will have spent at least a year working on the project by the time it's rolled out. "To really develop a world-class interactive site-including all the security and messaging architecture, and the links to legacy systems-takes a long, hard thought process," says Trachtenberg.

While the goal of Prudential's extranet is to make health care information as self-service as possible ("like the automated teller machine in the banking business," according to Trachtenberg), it has another goal: to invite customers to tap into the company's other business areas, such as financial services. By the time rollout is complete sometime in 1999, health-care members who also happen to own Prudential mutual funds will also be able to check on their fund status while they're logged into the Web site. "We want to provide a one-stop shop," says Trachtenberg.
C B. Fryer

Forces of Change

Competition from Banks: Financial services companies, from large multinationals to smaller retail banks, are competing with insurance companies to sell mutual funds, retirement packages, life insurance and other products.
IT Impact: IT must beat banks at their own game with data warehouses that let users find cross-selling opportunities among product lines.

Consolidation: Large international and domestic financial services and insurance companies are buying up smaller companies at a record pace.
IT Impact: Mergers and acquisitions force IT departments to marry heterogeneous systems. Open architectures are the only way to combat chaos.

Flattening Markets: Domestic demand for life, property and casualty products is dwindling.
IT Impact: IT must support an expanding number of products and support offices in rapidly expanding European, Asian and South American markets.

I.S. Actions

Hire people who have an acute understanding of business issues.

Design systems for an open world, both informationally and technologically.

Outsource selection of new client/server technology to gain time in the transition from the mainframe.

Aim for small wins that can be easily leveraged, such as a departmental call center.

Identify common business objects and share them among all lines of the business.

Dare to emulate your most aggressive competitors in the banking business.

Common Threads

Expansion of business: Customers want one-stop shops that offer everything from mutual funds to health care; IS must support multiple lines of business.

The customer is king: Insurance companies realize that customers can choose to go elsewhere. IS is responsible for developing solutions that provide better, faster service.

The Internet: Customers want interactive account information over the Internet; IS will need to set up enterprisewide architectures to support such requests.

Insurance Industry at a Glance

Gigantic flat-file transactional databases of up to 1 million gigabytes used to reside on mainframes; customers were not people but Cobol data.
Companies and agents operated in product specialties and did not cross functions. Product and customer information about these specialties was stored in single databases, or "silos."
The insurance industry was highly regulated; conservatism ruled.
New products are developed as data warehouses reveal new opportunities based on current customer information.
GUI front ends will provide users with simple views to databases containing common customer data.
Web sites will allow prospects to get quotes and buy simple products, such as auto insurance, online.
Deregulation is changing the traditional boundaries between securities firms, insurance companies and financial companies.


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