Deregulation Drives Insurers To Mine Data

Just a month after the repeal of the 1933 Glass-Steagall Act eliminated the boundaries between banks, brokerage houses and insurers, enterprise solution providers are ramping up for a wide range of work from insurance companies looking to position themselves in the face of an uncertain future.

Stats Box SPENDING: Insurers to spend $76 billion on IT products, services this year. RISE SEEN: Spending to rise 25 percent to 95 percent over next two years.

Insurance companies, which have a long history of developing custom applications in-house, are now turning to integrators such as EDS and IBM Global Services to help them build flexible IT infrastructures and implement solutions that range from enterprise resource planning and customer relationship management (CRM) to data warehousing, data mining and E-commerce,anything that will help them gain a competitive edge in a market that is being transformed daily.

Insurance companies will spend $76 billion on IT products and services worldwide this year, according to Dataquest, San Jose, Calif. The market-research firm predicts that IT spending by these companies will jump 25 percent in the next two years, to $95 billion by 2001. This year, these companies spent an average of 3.5 percent of their annual revenue on IT, according to InformationWeek, a CMP Media Inc. publication.

While deregulation is reshaping the industry's competitive landscape, the Internet is breeding a more sophisticated customer base that is forcing insurance companies to become more efficient.

"Consumer demand is leading to a shortening of the life cycles of products, which in turn is forcing insurance companies to focus on IT to help them get to market faster," said Tom Warsop, vice president of insurance industry solutions for EDS, whose clients in this sector include Allstate Insurance Co., Mutual of Omaha and Nationwide Insurance.

EDS, Plano, Texas, went live earlier this year with a pilot CRM solution for one of its largest insurance clients, which, after decades of selling via its agents, wants to sell property and casualty policies directly to customers. The front end of the solution is a Web application linked to a single database populated with data from a number of the company's internal systems.

The solution not only allows policy holders and customer service representatives to make changes to existing policies and quote new policies, but also, when fully functional, it will allow the company to perform sophisticated data mining and database marketing. "We built a number of applications to go through and look at that data and figure out where the opportunities to cross-sell are," Warsop said.

CRM, Warsop explained, is about getting the right information to the right person at the right time so the customer is best served. "In my opinion, service will be the only real differentiator soon," he said. "Price will always have a bearing. But, in most cases, for the simpler products,homeowner's coverage, auto coverage, umbrella liability, term life, those kinds of products,price is going to be pretty close. It's going to have to be, or you won't be competitive. So what's going to differentiate you is how you service your clients."

Warsop said most insurance companies EDS works with use some aspect of CRM. "But if you were to ask them if they had a comprehensive customer relationship management plan and approach they'll say, 'No, we don't,' because most of them are still product-oriented," he said.

The slow move from an IT strategy that is product-focused to one that is customer-focused is a major trend in the insurance industry and one that offers many opportunities for enterprise solution providers, said Robert G. Farrell Jr., vice president of insurance at IBM Global Services, Somers, N.Y. The integrator, whose clients include Prudential Insurance Co. of America, employs CRM and data mining to help its clients in this sector look at IT as a way to build customer relationships that go beyond individual transactions.

"We have clients that have five or six different lines of business and five or six different relationships with consumers and no linkage between them," said Farrell. "What we've done with some of these data-mining applications is go into their existing legacy systems,because they have terabytes and terabytes of data on their customers, both historical and current,and pull out from them extracts that tell them what linkages they have and tell them . . . how they can get more wallet-share."

The last two years have seen a major shift by insurance firms in how they view outside IT service providers, Farrell said. Companies used to look to outside IT service providers merely for help with in-house solutions. Now they are looking for integrators to play a more long-term role in their IT strategies. "For them to look at their core IT function and think about moving some of what used to be considered the crown jewels outside has been something relatively new," he said.