SOUND INTERNET SOLUTIONS

By John Ashenhurst

PAVING THE COW PATH

Industry veteran reflects on
insurance, change, and technology

"We have to change fundamentally but our ability to change is
inhibited by our culture, our functional silos and our systems."

--John Roblin, CEO, Cover-All

Recently I had a chance to talk with John Roblin, Cover-All CEO, about how emerging technology is and isn't being used successfully in the insurance industry. Roblin has served as carrier CIO (for Chubb, USF&G, Travelers' Personal Lines, and CIGNA P&C), IVANS chairman, bank/credit card company CIO (Advanta), and vendor CEO (Cover-All). That gives him a unique perspective on the practical and strategic uses of technology for the insurance industry. What follows is an abbreviated version of that interview.

JA: John, unlike most of the rest of us, you've had a chance to participate in the inner workings of financial services outside the insurance industry. How is it different? What can you share and what can we learn?

JR: Advanta was one of the first banks to focus on the credit card business and it became quite successful. One of the first things I noticed when I joined the company was how quickly they could roll out a new product--usually in 90 days or less--compared with what I'd been used to in the insurance industry--where several months or even years was the norm.

During my time at Advanta, I also observed that in banking the various functions or departments that make up the banking process are more aligned with the overall business objectives. They don't have their own independent and potentially conflicting goals. In insurance, in many cases, it's different. Underwriting, actuarial, claims, marketing, and other functional silos sometimes look at themselves as independent business entities with their own goals and objectives. Separate functional silos then have separate systems leading to even more connections and complexity.

This environment makes it very difficult for CEOs to orchestrate and implement new business strategies that cut across these organizational boundaries.

JA: How do you account for this difference? Why did banking change, and why hasn't insurance?

JR: It's due in part to inertia. The insurance industry finds comfort in its actions or lack of them by saying, "We've always done it that way." But I think there's a more fundamental reason. In the '70s banking began to experience competition from inside and outside the industry that insurance is only now finally beginning to see. And that forced banking to realize that it had to look at itself from the customer's point of view. It had to begin asking itself how it could make the customer's experience more successful and satisfying. Banks that could and did, began to buy out the banks that couldn't and didn't.

When you finally begin to look through your customer's eyes at what you do, you might realize that your organization and systems were built to suit you, and not your customer. So banking put the customer experience up front and its own convenience in the background. Business planning revolved around the customer. It didn't make sense for individual departments to have needs and goals independent of the overriding goal of the bank--great customer experiences. In insurance we've tended to optimize vertically, by silo. In banking they optimize horizontally--which is the way the customer sees things.

JA: So from your point of view, banking was forced to change, to truly put the customer first and create a culture and systems that made it possible. Is the insurance industry hopeless? Are there some bright spots?

JR: Absolutely there are bright spots. You probably remember when Chubb created Masterpiece, the personal lines package policy for upscale consumers. We identified a niche and then looked at how we could best serve it. We saw that upscale consumers had real problems understanding and buying insurance because they have so many insurance needs. They would have to buy half a dozen policies and still might not be adequately covered in certain areas. So we designed a product that took care of everything in a single custom policy. And we developed technology that made it efficient to quote, propose, and sell these policies with the speed of mass production.

We looked hard at our paper applications and questioned the need for every piece of information. If it didn't make an appreciable difference to the underwriting process, if it didn't really affect the premium, we left it out of Masterpiece. Of course that meant struggles with actuaries or other groups that always wanted more and more information--even if the business benefits fell short of the cost to capture and maintain the information, not to mention the inconvenience to the customer and agent. It took a senior businessperson, looking at the whole end-to-end process, to override the parochial interests of the functional areas and streamline the business process.

The key is to understand the entire business strategy and align the processes with the customer's perception of value rather than optimizing each individual functional silo. Many in our industry see these issues and understand that we have to change fundamentally but our ability to change is inhibited by our culture, our functional silos and our systems.

JA: It seems to me that ACORD, IVANS, SEMCI, straight-through processing and interface issues in general have a product focus--not a customer experience focus. It's as if the industry looks inward rather than outward, that concerns about internal efficiency trump concerns about customer satisfaction. What do you think?

JR: I agree. In this industry, the connection between the customer and the product has significant "gaps." Let me give you an example. Let's say you have a day care center and you want to buy insurance. What happens? You go to an agent and the agent tries to cobble together a variety of policies from several different sources to cover your risks. The process takes the unified needs of the day care center, breaks them down into little pieces, goes through complex and redundant application, underwriting, and pricing processes and then attempts to put the pieces back together in some kind of proposal that makes sense to the customer--but it doesn't.

Today some carriers and MGAs have made real progress putting together industry-specific packages, but we still have a disconnect between customer needs and the traditional insurance products. Insurance companies operate by what we call line of business. Agents and their customers would rather operate by type of business. It's a big difference. There are good reasons for the different perspectives but sooner or later, the customer's needs will be served.

JA: How do the ACORD standards come into the picture?

JR: First let me say that I think ACORD has worked hard and accomplished a great deal over the years. The work that has been done to standardize and define data is especially valuable, as is their work with other standards organizations. At Cover-All we use ACORD standards whenever they exist.

But in some ways the standards process is a visible symptom of how this industry fails to understand that it needs to change to a customer focus. I would argue that the fundamental purpose of standards is to enable us to marginally improve the status quo. So your view of the value and effectiveness of any set of standards depends to a large degree on whether you think the challenge is to make marginal improvement to the status quo, or to work on major revision.

Standards haven't resulted in changing the way the industry works--which is what we really need. In fact, like many of our legacy systems, standards can inhibit change rather than enable it. I find it interesting to compare the results of ACORD and the development of MICR standards in banking. There was a need for banks to devise a minimal set of standards to handle rapidly increasing volumes of payments. A very different mindset was brought to bear and success was achieved in a short time. Without MICR, banks could not function today.

The ACORD standards are often a compromise in order to gain broad acceptance. Therefore, they get more and more complex year after year. More and more fields are added as actuaries, underwriters and others make new demands. Agents, carriers, vendors, and ultimately consumers have to deal with this increasing complexity. Sometimes it seems that the standards process is really just a way of paving the cow path. We use increasingly sophisticated technology to do exactly the same thing we've always done. What we should be doing instead is rethinking the insurance process and products from the customer's point of view. Standards are a tool to help us achieve a business goal-- not an objective unto themselves.

JA: If the standards are paving the cow path, that is reinforcing old, increasingly inappropriate business processes, how do we make the kinds of changes you have in mind? How do we use technology to do things a new way?

JR: The key, I think, to making change happen is for carriers and agents to begin to look at how they should use and own data differently from the way they do today. Today, we recreate and store the same data over and over in different places. The agent wants complete policy detail. The carrier wants complete policy detail. They each want to own the data. They each want to be in charge of the data. So we've tried to create a complex process for giving each what it thinks it wants. But it doesn't work.

What makes more sense to me is for agents and carriers to come to an agreement that before the policy is sold, the agent owns the data and after it's sold and the carrier is on the risk, the carrier owns the data. Before the sale, the agent holds the gold standard for data. After the sale, the carrier system is the gold standard.

So one implication for technology is that when agents need information about an in-force policy or want to make a change, they would use the carrier's version. Some way or other they'd go to the carrier database. Carriers are starting now to provide access to their databases through their Web sites, and some agents are taking advantage of those services. But there's still an expectation that data must be transferred back to the agent's system. Our current industry technology model is built on the idea of redundant information storage that we attempt to keep consistent through interface.

Our new technology model should be based on the idea that information is captured once and shared utilizing communication tools like the Internet. If I understand it correctly, your idea of hybrid management systems is based on the idea of shared information. We are also well aware of this at Cover-All and have developed solutions like My Insurance Center that can address the present operating needs of agents, brokers, and carriers and will enable them to move quickly to a much more simplified operating structure in the near-term.

These are examples of the type of new thinking that we need--to focus on how to work together to make the insurance process faster, more efficient and better able to serve the customer. *

The author

John Ashenhurst publishes Sounding Line, an electronic newsletter focused on insurance technology, as well as a Weblog, johnashenhurst.com. For more information, see www.soundingline.com. He can be reached at johnashenhurst@soundingline.com or (360) 376-1090.

John Roblin is Cover-All Technologies CEO, creator of My Insurance Center, a comprehensive business processing and an information access platform for the insurance industry (www.cover-all.com). He can be reached at jroblin@cover-all.com.