One way of improving those resources is to get the business side and the technology team working together. Richard Connell, CIO of Selective Insurance Group, located in Branchville, N.J., says, We have a process wherein we align our business strategy with our technology initiatives. We look at our business strategy and say, What do we have to do from a technology standpoint to make some of that happen.

There is no mystery as to why executives turn to the IT department. You look to systems for two things, Chookaszian says. One is cost reductiondo things better, faster, cheaperand the second is for better information so you can do more analytical things. Such analytics can assist in the evaluation and settlement of claims and underwriting selection. Those things can be driven by better information, he says.

The problem with getting better information is that many companies are heavily tied into their legacy systems, which prevents them from investing in new systems. Its hard to change, Chookaszian notes. Its costly to get out of the old system, and often it doesnt integrate well. There are solutions out there that do integrate with the legacy system and provide specialized service in underwriting and claims.

Old systems often have secrets locked inside them that insurers have difficulty extracting. Having good programmers available to translate the old COBOL systems of 30 years ago is imperative because often the code is not as well documented as it should be, Chookaszian observes.

Most of these systems were built around the idea of decision tables, he says. Documentation ranged from terrific to terrible. Any competent programmer could sit down and read the code and tell you what the decision rules are. Technology people understand the decision rules well, but management might not know what to do about ithow relevant are the rules, what do we do with them, how do we change them.

Extending Data Usage

The older systems are complex and costly to run. The data being entered in the older systems was designed to be used more for maintaining control of the policy, not for analytical purposes. That meant data had to be extracted from the system and put into databases where the information could be extended and analytics could be performed.

Until insurers can replace those systems, Chookaszian believes many carriers will be using a surround and connect system. You surround the mainframe with all these piece parts, he says. Ultimately, when you get enough of the pieces around the outsideif they are built in the right technologyyou just get rid of the central core.

Selective developed its claims processing system through the acquisition of the software vendor, and after the project was completed the software company was sold. The system works on laptops for the mobile claims force, and the data is downloaded into a database and then moved to a claims data mart to give users and managers analytical capabilities on top of the claims information, Connell says. They can use the system to drill down in two areasclaims productivity and the financial impact of claims.

Selectives claims service center is set up so that when it receives the first notice of loss it can assign the claims to the proper adjuster.

This and all Selectives projects must follow a set of rules designed to control expenses. IT represents a fairly sizeable cost element for the company, Connell says. All our business initiatives or IT initiatives are driven from a business case that has to show a particular return or it doesnt go forward. When we look at our IT infrastructure, weve built service-level agreements and total cost of ownership models for each of the elements within that infrastructuremainframe processors, Web servers, or application serversas a way of making sure we are spending money in the right spot and doing it efficiently.

Information Is the Key

For P&C insurers, Chookaszian believes such tools can make a tremendous difference. In the property industry, he mentions the work done by Marshall & Swift/Boeckh on the underwriting side. Its estimating systems can help insurers that have undervalued the property they are insuring. MS/B estimates that 73 percent of homes where its valuation products are not used are underinsured by up to 35 percent. The MS/B estimating software updates the value of property, allowing insurers to increase the premium to cover the increased risk. Other software providers are doing similar work with collision damage systems for auto repairs.

Information is the key to going forward, Chookaszian says. Insurers all have databases. The question is, are they usable and accessible to the people who make decisions. First you have to have the data. Then you have to have the tools. The tools are actually easier to come by than getting the data set up right. A lot of companies have the software that will allow you to do analysis.

Schweppe says even the best analysts cant do their job without the proper data. Actuaries are the best statisticians in the world, with an endless appetite for data, he says. The challenge is how do they get it, how do they aggregate it, understand it, and apply it to the business.

Todd Eyler, senior analyst with Forrester Research, says a new study by the research organization shows insurers are trailing other industries in the amount of money being spent on business intelligence tools, which can be used to analyze claims and underwriting data. Only 19 percent of insurance carriers will be buying business intelligence software in the second half of 2002, compared to 24 percent for all other industries, Eyler says. He believes the reason for this is insurers have been burned by data mining projects in the past. They tried to do too much at once, and it led to a lot of disappointment, he says.

Extracting data across the enterprise is a labor-intensive task. The data quality tends to be fairly low as far as accuracy and consistency, Eyler says. It is a big investment in manual labor, and companies typically dont get good outcomes. If insurers are trying to cleanse that data, he recommends they be more focused on the types of data being extracted instead of trying to do everything at once.

Eyler thinks that data mining is helpful in the claims process as far as detecting trends, but he would like to see it used for more reactive analysis. Insurers need to access the relevant data in real time so they can do real-time analysis to get ahead of claims trends, not be six months behind all the time, he says.

Peace of Mind

Getting clean data for the analysis is another problem, though (for more on the need for and benefits of clean data, see Clean Sweep, p. 33). Its time consuming and expensive, but the cost savings are so significant, Chookaszian says. So is the piece of mind in knowing that when you repair a body part on a particular vehicle you know its got the right price tag attached to it. Without those tools, an insurers expenses can go way up.

It all comes down to return on investment. In these post-9/11 days, the letters ROI have become possibly the most critical letters in an industry ripe with acronyms. Its probably the most important thing insurers should be doing, Chookaszian says. You should be looking for ways to improve your results by dealing with the appropriate partners who can do these types of things for you.

Selective puts this into practice with a review of all vendor contracts to make sure conditions of the deal are being met. Says Connell: We have vendor management guidelines to make sure we are getting bang for our buck from our vendors.

New Underwriting System Rolls Out in 2003

Life insurance underwriters often believe their skills border on being an art form, so its not surprising that many doubt the ability of underwriting software to replace that talent. They believe it is very difficult to translate what they do into ones and zeros, says Todd Eyler, senior analyst for Forrester Research. That is one reason he is impressed with the work being done by Cincinnati-based Western & Southern Financial Group. Theyve created an expert underwriting application that has thousands of business rules encapsulated within it, Eyler says. When you think about what that can do, it could be pretty powerful.

Jim Teeters, senior vice president insurance operations for Western & Southern, is also excited about the system, developed with software provider NaviSys, but he disputes the part about underwriters being resistant to the change. It depends on how you position it to your staff, he says. In fact, this is getting rid of a lot of the routine stuff they have to do. Teeters says the carrier believes that the combination of speed, accuracy, and broad distribution of its products through the new system will improve its market position.

Western & Southern began looking at ways to improve its underwriting operations in 1999 but couldnt find what it needed. A year later, though, things had progressed to the point the carrier felt it could work with NaviSys to develop an underwriting piece for NaviSys FrontOffice system. We agreed to a joint development project with them to get an underwriting system developed to our specifications, Teeters says, explaining that what was good about NaviSys was it had a Web-based, front-end application process built right into the system. So we decided to combine two projectsan electronic application project and an automated underwriting projectinto what we call iNB (Intelligent New Business), says Teeters.

The company focused on four specific needs. It wanted a Web-based tool with a wide degree of access across the different distribution systems. It wanted something user-configurable, so we wouldnt have to go to programming every time we wanted to add a product or change a question, says Teeters. The company wanted a platform where it could combine three separate departments into one to concentrate on new business. And finally, it wanted to get rid of the paper. We wanted to completely eliminate paper out of the new business process, he says.

The electronic application process quickly sped up the policy process. What once took 10 days then took seconds as the agent entered the policy application from the field directly to the home office. The company also adopted a PenPad system for electronic signatures to be used in the field, although other sales channels will require a different system that is currently under development.

Built into the questionnaire for applicants are underwriting questions. If it is a clean application and all the answers are no, it doesnt take very long, Teeters says. But if they have a health history, the system keeps drilling down into more underwriting questions.

Some of the Western & Southern products have preferred classes, so applicants can learn quickly (if information is later verified by paramed tests) whether they are eligible for certain classifications (and lower rates). That helps our placement ratio quite a bit because people wont be surprised by a policy coming back different from what they thought they were getting, Teeters says.

When the policy is inside the system, it goes through a rules engine with 15,000 rules. Teeters describes it as system-centric design because data is entered into the system that can flow through the rules rather than an image of a document. Even when there are image documents that kick the file out of the system, Teeters says underwriters review only that document, not the entire file. On certain high-volume cases, though, one of the rules may be that before the policy is issued, an underwriter reviews the entire file.

Western & Southern is in the final testing stages of the project with 100 of its agents going into production in October and rolling it out in the first quarter of 2003. Says Teeters: Its probably the biggest system project weve done in the last 10 years.