Perhaps you’ve heard that Microsoft is pulling the plug on Encarta. Seems the Internet (most specifically, Wikipedia) has made Encarta obsolete – the same way that Encarta made print encyclopedia obsolete in the 90’s. Only difference was that the print versions did well for hundreds of years while Encarta did well less than a tenth of that! This year, all physical Encarta products will be pulled from store shelves and all Encarta web sites will be closed down. You can’t have a more definitive death than that.
When Microsoft was being accused of violating antitrust law, one of Bill Gates’ defenses was that monopolies couldn’t truly exist in the digital realm because there’s always some new technology that can quickly undermine it. He didn’t get many believers at the time, but even while he was speaking Google was on its way to making Gates and Microsoft look like buggy whip makers. The swift rise and swift fall of Encarta is a sign of the digital times.
If the insurance industry is going to fully benefit from information technology, it must recognize that it will be harder and harder to exploit rapidly evolving technologies without relying more heavily on a strong set of suppliers: software companies, outsourcing companies, and the like. A do-it-yourself mentality for insurance company IT departments is not a reasonable option for any carrier who wants to take advantage of the ever-increasing – and ever-changing – advantages of today’s digital technologies.
It’s hard enough to manage and insurance enterprise, without also trying to keep up with changes that even brains like Bill Gates can’t stay on top of.
April 6, 2009 at 10:29 am |
As if on cue, today’s Wall Street Journal expounds on how Wikipedia has gone from novelty to the world’s most popular encyclopedia. Day by day, it continues to grow in breadth (which is understandable), depth (which is underappreciated), and quality (which is underreported). (See here - WSJ subscription required)
April 6, 2009 at 2:06 pm |
Mike,
As a long time technology vendor (almost 35 years) to P+C insurance companies their unwillingness/inability to recognize that their businesses are very similar always amazed me. Were they to manage rating and underwriting deviations carefully, they could lower costs while increasing the effectiveness of their pricing and underwriting. As an added benefit they could (and should) automate with vendor supplied systems far more effectively and at a lower expense than doing it on their own.
Carriers need to make an effort to avoid being different without a clear business case that is reviewed periodically.
Their apparent desire is to be “different’ from their competitors in ways that have no benefit to their company other than “This is how we have always done it.”
No where is this more obvious than in rating. The machinations and deviations from their rating bureau (usually ISO) are amazing. Interestingly they are rarely understood and documented within the company. A high level of reverse engineering is usually required for the company to explain to a vendor how they actually rate.
Most companies also do not mange their underwriting effectively. I once had the opportunity to review auto insurance underwriting decisions for hundreds of thousands of policies from dozens of companies against external data. In almost all cases a third of the policies thought to be high risk were not and a third of the policies thought to be low risk were high risk. I know the results were valid because most companies adjusted their underwriting decisions based on the result of the review.
And generally the bigger the company, the worse the problem. Often regions have gone their own way and acquisitions and mergers add to the issue. Rarely does a company review and standardize as time passes.
Output documents such as declaration pages and bills have similar amounts of unique characteristics and resulting higher costs without any obvious benefit.
April 6, 2009 at 2:38 pm |
All too true, Chuck. By contrast, community banks do indeed differentiate on points other than automation. In fact, the vast majority of community banks use one of only four vendors – and most people say there isn’t even that much difference in the four. And two of the four just agreed to merge! Meanwhile, property & casualty insurance has over 30 different policy administration systems from which to choose. That doesn’t make for a very efficient industry. Perhaps the current economic stress will provide enough motivation for improving the situation you describe. I hope so.
September 18, 2009 at 10:40 am |
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September 21, 2009 at 4:34 am |
I’ve been involved in eBusiness in the London Market for many years and the comments resonate here also. I work with a few forward thinking “Early Adopters” who are making a real difference in their Broking and Underwriting companies but the masses have yet to see the benefit of applying modern technologies and networking websites to their day to day operations. We have the added distraction that London is such a “Club” atmosphere with brokers and underwriters meeting each day to negotiate face to face. There is an inherent fear that any technology is a threat to that way of working and therefore shunned by the market practitioners.
As a lowly software vendor all I can do is chip away until the mass audience feels they are missing something. It will happen, I just hope I live long enought to see it.