Rethinking Old Policies

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Rethinking Old Policies

Insurance companies try to reduce their reliance on aging mainframes

By John Foley
Issue date: Sept. 18, 1995

here's a growing sense of urgency among the nation's insurance companies that has nothing to do with hu rricanes, earthquakes, fires, or floods. Insurers are dealing with a different kind of problem: the need to create new insurance products, cut costs, and improve customer service--all with computing infrastructures that are heavily dependent on aging mainframes.

"We're under a lot of competitive pressure, both within our industry and looking over our shoulder at other financial industries," says Bruce Goodman, president of Prudential Business Systems in Roseland, N.J., which manages computer systems that handle individual insurance policies and new accounts. "The pressure is on to be very creative in terms of new ways to meet the business needs. It can't be business as usual."

What is business as usual? In many insurance companies, it's still a heavy reliance on paper documents in the front office and mainframes in the back office.

A survey of chief information officers by Deloitte & Touche in New York, a Big Six accounting firm and IT consultancy, found that insurance companies spend 73% of their information technology budgets to maintain mainframes. For all industries, the average for mainframe spending was 55%.

"The maintenance effort and cost are getting to be astronomical," says Mark Savory, national director of insurance consulting at Ernst & Young in New York.

Shifting To Client-Server
Some insurers, such as Cigna Corp. in Philadelphia, are avoiding these expenses by moving aggressively to client-server systems. "We're well along in terms of deploying the technology," says Raymond Caron, Cigna's chief information officer. "The issue is: How do you continue to manage it, given the amount of change in terms of operating systems, hardware, and emerging technologies? How do you bring that out in a cost-effective way, and at the same time run a very reliable, high-performance client-server environment?"

For Cigna, with an IT budget of about $500 million annually, the answer is to put processes in place to ensure the information systems staff is striving for excellen ce while managing change. Cigna is working with the Software Engineering Institute to improve software development and applications deployment. "We are doing a better job of project planning and management, follow-through, and meeting deliverables," says Caron.

Other insurers are experimenting with any technology that offers potential relief: workflow and imaging software in administrative offices, laptops and digital cameras in the field, and artificial intelligence and computer-modeling software for risk assessment. Deloitte & Touche reports a 50% jump in reengineering projects at insurance companies last year: 3.1 projects on average in 1994, compared with 1.9 in 1993.

Technology managers in the industry have learned from the past. With mainframes that are 15 years old in some cases, executives place a high value on "reusable" software components. Some see object-oriented technology as a long-term solution. "The ability to reuse parts of a system and to very quickly introduce new parts is a mu st," says Goodman. "We think object programming has a big advantage."

Last spring, Prudential began working with IBM and some competitors, including Equitable Life Assurance Society, to develop object-based applications. "We recognize there are things we do in common from which we can't really derive much, if any, competitive advantage," says Goodman.

But competitive concerns are never far from the surface. "We're seeing organizations that are building the capability to gather information about competitors and using groupware to store, analyze, and distribute it throughout the company," says John Demetra, senior partner responsible for insurance consulting with Deloitte & Touche.

With $125 million out of Prudential's $812 million corporatewide IT budget, Prudential Business Systems is responding to its technology challenge with a three-pronged strategy: lengthen the life span of legacy systems; deploy new systems that support the immediate need for more responsive policy administration; and use technology to increase worker productivity.

To meet its first goal, Prudential is upgrading its mainframes from its proprietary programming language, PruCobol, to Cobol II, a cross-industry standard. Goldman says the move will enable programmers to use advanced off-the-shelf tools.

Prudential is piloting workflow and imaging systems for policy administration and plans to deploy them this fall. It's a move other insurers are following. "I'm seeing more $50 million to $100 million investments in technology in administrative systems, to improve customer support," says Deloitte & Touche's Demetra. To boost worker productivity, Prudential in January began giving laptop computers to its field sales force--an investment that has begun to pay dividends. In the past, field representatives worked with a 15-page policy application, which could take up to six weeks to process. With 500,000 applications a year, the process was painstakingly slow and unacceptably outdated.

But with laptops, 50% of appli cations are accepted on the spot, Goodman says. Of the rest, 65% are approved after a quick call to corporate headquarters, where underwriters use workstations and artificial intelligence to make decisions.

John Hancock Mutual Life Insurance Co. in Boston, though smaller than Prudential, faces many of the same problems. "We're trying to find ways to reduce costs and become more efficient, while providing technology to support new areas of the business," says Charlie Raeburn, who oversees $42 million of John Hancock's IT budget as VP of information services at Hancock's Retail Sector.

For the last 12 months, Raeburn and his staff have been ramping up a client-server network that will bring imaging and workflow capabilities to a 500-person customer-service center in September. "We'll be able to take on a lot more customer calls and do it more efficiently," Raeburn says.

The automated call center has bottom-line benefits as well. John Hancock has eliminated 80 administrative positions in the field because it no longer needs as many remote people to answer phones and manually key data into a mainframe. Despite the benefits, however, the client-server system has done little to reduce the organization's reliance on mainframes. It's "not retiring any of our legacy applications," Raeburn says.

That's not unusual. Investment in client-server systems does not necessarily reduce dependence on legacy systems, according to Deloitte & Touche's Demetra. "You see long, long time frames to get some of these new technologies fully deployed," he says.

Lee Lapioli, senior VP and CIO at New York Life Insurance Co. in New York, knows all about that problem. Lapioli, who joined the company last year, recently completed a five-year plan to overhaul his company's aging technology base. New York Life's plan involves setting company standards for computer hardware and software, deploying client-server systems, and retraining the work force--a path many companies are already well along. "I would say we're behind," Lapioli admits.

New York Life's major goals include relying less on mainframes, using technology to be more proactive in product development, and increasing productivity. One project involves providing new technology to the insurer's 8,500 full-time agents in the field, some of whom are still using 286 PCs. "The sooner you can fix that problem, the better off you're going to be," says Lapioli. New York Life is also testing imaging and workflow software from FileNet Corp. in Costa Mesa, Calif. A customer service center will be the first to get the system. "If that works well, we are going to go companywide with the system," Lapioli says.

These major upgrade projects are expensive, which will put CIOs under the microscope, warns consultant Savory. "I think we're going to see an increasing focus on two questions within the major insurance companies: What value are we getting? And what contribution does it make to our overall business?" Technology executives should be busy working on the answers.

(To view the Insurance chart in PDF format click here)

Photo for InformationWeek By Edward Santalone

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